Prisoner's Dilemma & The Race to a COVID-19 Vaccine

After testing positive for COVID-19 over the weekend and our discussion of the prisoner's dilemma in class today, I started to think about how these two subjects actually connect quite well. COVID-19 has affected almost the whole world and the race is on for which country will be the first to successfully introduce a safe vaccine, but herein lies the "real-life prisoner's dilemma."

To date, the US, Europe and China have led the pack, investing the most into developing a vaccine, but their willingness to share and take collective action is lacking, one may argue. Each country has a dominant strategy: not to cooperate or combine with one another. It is in each country's best interest to develop and manufacture their own vaccine and distribute it to their citizens as quickly as possible, without wasting time, money and effort on getting the vaccine to other nations. Countries do not want to share their contributions with others in fear they may not get any benefit/contributions in return; they want to protect their own people first and maximize their profit and prestige. Unfortunately, this strategy comes at a greater cost to the rest of the world. If countries were to coordinate efforts, a vaccine could safely reach all people around the world at a faster rate, resulting in an allocatively efficient outcome. Once successfully approved, a COVID-19 vaccine should be a public good. By countries not taking collective action on the development, manufacturing, and distribution of the vaccine, the world is settling on an allocatively inefficient outcome of a public good: Q will be less than Qae.

How Sorority Bylaws are a Waste of Time

As a member of a sorority here at UVa, there comes a time each school year where we must vote for bylaws. These bylaws are the rules and standards that the members of our chapter are held to. Even greek life organizations as a whole must vote on collective bylaws. First, we vote for representatives to decide which proposals are possible and then, as a chapter, we vote if we should implement these new rules/standards. As a member I am encouraged but not required to vote for these bylaws- and as the economics student I am, I can honestly say that I have never once voted. 

Truly I see no value in voting. Even though it takes very little time out of my day thus the opportunity cost is not very large, my benefit is so low it still does not outweigh the cost. My roommate who is on the committee of representatives gets frustrated that I do not vote since it takes so little time and thinks I have a “moral obligation” to do so- so, if i ever voted it would be for her due to the social pressure. Also, I see no reason to be informed on these bylaws since I “voted” for representatives to do this for me. This concept represents rational ignorance. Lastly, I know that my vote will not influence the outcome as these bylaws almost always pass- so the odds of me being a tie-breaker are very low. I just do not have the incentive to invest my time to read through these new bylaws either. So overall, I’m just a rational voter. 

Essential Workers are Irrational Economists

Recently, I came across a NPR article that addressed the sacrifices made by essential workers during the beginning of the COVID-19 pandemic.They went from working jobs that they initially signed up for to working with significantly higher risk to not only their personal health, but the health of their loved ones. The majority of those workers were not given proper compensation for the higher cost that their job had put on them. Ironically, many people were discovering that they would make more money from stimulus checks and unemployment benefits than they would continuing to work their jobs. Regardless, many essential workers felt that it was their duty to continue working for the betterment of society.
This is a real world example of Private Marginal Costs PMC) outweighing Social Marginal Cost (SMC). From Gruber, we learn that a way to equalize PMC and SMC is to create a subsidy for the essential workers equal to the Marginal Benefit (MB) of each “unit” of work. This subsidy never happened, yet the amount of essential work done was still at QAE. The fact that government intervention was not necessary here shows that altruism is an important incentive for many people. The motivation of altruism is something that economists sometimes overlook (not always, Mueller brings it up in chapter three). The essential workers who chose to keep working, despite the high risks and missed opportunity for government stimulus checks, chose altruism over what most economists would assume.

The Externality Masked by a Global Pandemic

 

The Covid-19 Pandemic has reeked economic havoc in the United States and throughout the world, and there is one unforeseen cost of this pandemic that will likely not receive the necessary attention until there is some end to the masked world we exist in today. There is a large negative consumption externality from the purchase and use of disposable masks. The UN estimates that waste created as a byproduct of the pandemic (specifically masks) would cause at least $40 million in damages to environmental industries such as fishing, not even taking into account the direct environmental impact. People’s livelihoods, and our planet’s health depend upon the health of our oceans, and the pandemic has the potential to do great damage.

A negative consumption externality of masks means that the social marginal benefit of the masks is less than the private marginal benefit of masks. The socially optimal output level of masks is far less than the current competitive market equilibrium output. During this pandemic, we are are way overconsuming masks without internalizing the external environmental cost of consuming them. As I researched this problem, I found some companies that were making more sustainable masks, or companies that were donating a portion of profits to Covid relief funds, but none that were focused on allocating some resources from the revenue of their masks towards the environmental cost mask waste has caused. Since this externality is a global issue, using a Coasian solution would be difficult to realize. On one hand, perhaps taxing the consumer for the purchase of masks and using those funds to offset the environmental damage would equalize the social marginal benefit and the private marginal benefit. On the other hand, while we recognize the current overconsumption, as a society, we do not want people to stop wearing masks right now. In the end, this may be an externality we cannot deal with until the end of the pandemic, but it is important to at least recognize its existence and impact.

Movie Theaters: Excludable But Inefficient?

Earlier this week I saw Chris Nolan’s new film “Tenet” in a 300 person IMAX theater. Only 5 other people showed up. If COVID-19 wasn’t around, I would prefer the excitement of a busy auditorium because nobody else’s consumption of Tenet would diminish my own. I consume the same amount of Tenet if there are 5 people or 200. Since movie theaters (within the fixed restriction of seat capacity) are non-rivalrous, an economist like Paul Samuelson might argue that they should be publicly provided. James Buchanon, on the other hand, would point out that theaters are excludable, and because of this they could achieve an efficient equilibrium privately. However, the demand for movie tickets is falling due to at-home substitutes like Netflix, and ticket prices are rising, likely due to studios insisting on a majority share of ticket revenue.

Since theaters are struggling to fill up seats, it seems that their pricing techniques do not achieve an efficient equilibrium. Blockbuster movie tickets cost the same as small indie films, and matinees cost the same as more popular nighttime screenings. As Buchanon stipulates: excludability should help firms achieve efficiency, but I deduce that theaters are still under-consumed (relative to Q_AE) because of inefficient pricing mechanisms, and thus, the private market has not yet achieved efficiency. Ticket prices do not factor in that demand will differ among movies and time. To achieve efficiency, theaters need to restructure their pricing techniques to match current market conditions. They could use price discrimination (dynamic pricing), similar to that of airlines or Über, which would increase their revenue and satisfy more customers. 

In summary: movie theaters could operate efficiently in the private market if they used dynamic pricing to reflect the differing demand for certain movies & times.