Monday, July 27, 2009

Paul Krugman Could Not Have Predicted Ebay

Paul Krugman: The standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough.

Hodak Value: Whenever I see such nonsense, I have to keep reminding myself that the trade theories for which Krugman won his Nobel Prize were explanatory and predictive. Krugman did not win a prize for mechanism design; he could not have predicted E-bay.

The idea of people bidding for stuff they can’t really see from people that they’ve never met is fraught with asymmetrical information. Honest sellers could not hope to compete with liars selling competitive products. Honest bidders could not hope to compete with fraudulent bids that may not be honored. Such a market, failing as it does the test of a “standard competitive market model” could never exist.

Except that it does.

E-bay exists because they managed to attach a credibility mechanism to their bidding process. This mechanism rewards people for neither understating nor overstating the qualities of the items they have put up for bid. It encourages honest bidding.

HT: Marc'n'NY

10 Comments:

At 7/27/2009 11:37 AM, Blogger rufus said...

He's right about ONE thing. You DO have to remove "Adverse Selection."

Large "Group" policies work because participation is "Mandated."

 
At 7/27/2009 12:34 PM, Blogger Angela said...

The eBay example is also very telling, because as Whitman (and now Donahoe) increased controls, added rules, and tried to protect the denizens, prices rose, item selection decreased, and prices went up.

 
At 7/27/2009 2:37 PM, Blogger Ben Eng said...

Mr Krugman's statement is also easily proven false by contradiction.

I expect free-market principles to be enough.

 
At 7/27/2009 2:43 PM, Blogger 1 said...

One wonders if Krugman can predict the time of day let alone anything else...

Daniel Okrent, one time editor of the New York Times wrote the following back in May of '05: "Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults"...

 
At 7/27/2009 8:55 PM, Blogger Shawn said...

Hodak with a bullet. PK with...an anvil?

 
At 7/27/2009 9:32 PM, Anonymous Mika said...

Krugman -"The standard competitive market model just doesn’t work for health care". . . .The vast majority of Americans know this is true. How can anybody with half a brain argue with that? If exclusively private sector health care "worked" we wouldn't be in a enormous national health care crisis with millions uninsured, others unable to afford the premiums, our health system being the most costly on the planet, and it is rated at 37th in overall quality. This is why a "public option" is inevitable.

 
At 7/27/2009 9:35 PM, Blogger Shawn said...

mika...goodness. When you compare a hideously governmentaly regulated industry to, well, utopia, and find the government side to be lacking, why-oh-why would you choose to call it an "exclusively private sector"?

You know not of what you speak.

 
At 7/27/2009 9:36 PM, Blogger Shawn said...

sorry, that's supposed to be "find the non-governmental side to be lacking"

 
At 7/28/2009 5:57 AM, Blogger 1 said...

"The vast majority of Americans know this is true"...

Are you talking about these abysmally ignorant Americans?

BTW there isn't a vast majority that agrees with your inane statement...

"How can anybody with half a brain argue with that?"...

Because anyone with a complete brain or uses the half brain you are bragging about know better and know what they want instead of socialist medicine...

 
At 7/28/2009 1:10 PM, Blogger 1 said...

33 second video clip - Krugman and health care: Krugman steps on his johnson...

 

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