Jevon’s Paradox

I read quite a few blog entries today (missed Atanu’s RSS feed for a while – it suddenly disappeared from my blog feeds list). I came to know about Jevons Paradox. In short what it says is this (from Wikipedia):

Consider the simplest case; a perfectly competitive market where fuel is the sole input used, and the only determinant of the price of work. If the cost of fuel remains constant, but the efficiency of its conversion into work is doubled, the effective price of work is halved and so twice as much work can be purchased for the same amount of money. If the amount of work purchased more than doubles, then the quantity of fuel used would actually increase, not decrease. If however, the price elasticity of demand for work is relatively inelastic, the amount of work purchased would less than double, and the quantity of fuel used would decrease.

It essentially formally puts what Gandhi has said long time back: There is enough to satisfy our needs but not our greed. 🙂 Well, I digress.

So, the message is that the basic assumption that technological breakthroughs, that will result in economic prices of goods and services, to offset the increase in consumption (and hence prices) is a myth. It will only further increase the consumption. Economists don’t want to know this. As one Upton Sinclair put it: It is very difficult to get a man to understand something when his salary depends on his not understanding it. 🙂

On the other hand, one Gerald Wilde, a psychology professor at Queen’s university has another theory (similar in concept)- the theory of risk homeostasis. He essentially says:

…each of us has a set level of risk that we find acceptable, and that when we lower the level of risk in one part of life we compensate with a corresponding rise in risk somewhere else.

When it comes to social policy, the theory of risk homeostasis says it’s pointless for the state to try to reduce overall risk. Rather, the state should directly reward the behaviour it wants more of, and directly punish behaviour it wants less of. So instead of forcing people to wear seatbelts, for instance, the state should impose massively punitive fines for speeding.

The same applies to the environment, where we should start thinking in terms of behaviour, not technology.

The last one when it comes to behavior, means (according to me, of course): use less.

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