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Comparative Advantage

This morning I finished Planet Money’s Episode 963: 13,000 Economists. 1 Question.. These fine folks make one of my favorite podcasts - each week is a different look at something weird from a weird perspective. It sounds like it’s very market/economy focused, but it’s really focused on everything economics. In the past decades economics has branched out to look at nearly every field of human endeavor with a mathematical eye. It’s not always very successful, but the economist perspective does make me look at things differently.

Anyway - this podcast, they went to a huge economist conference and asked everyone what the most important concept was in economics today.

One answer was, “comparative advantage”.

Emily Oster, professor of economics at Brown University, gave this description (slightly shortened):

My husband and I are both economists… When we first moved in together there was the inevitable question of who should do what. And at the time, I was better at, more or less, everything that we do in the house - all of the house stuff. In particular, cooking, and also doing the dishes. So we had to figure out which of the things he should do. And I’m quite a bit better at cooking. I’m only somewhat better at doing the dishes and loading the dishwasher. Because I’m only a little bit better at washing the dishes and much, much better at cooking, we’d say that I have a comparative advantage in cooking and he has a comparative advantage at washing the dishes because the gap there is small.

They went on to explain how this comes up all the time, and gave some other great examples. It’s a short podcast, and entertaining, so you should just listen to it.

But it struck me that I’ve seen the same problem as a supervisor, previously. It’s not uncommon to have a couple folks that are better at most things than everyone else. They’ll usually be particularly good at some things, but also fairly good at all other things.

Then - you’ve got work to dole out to people. Asking for volunteers goes pretty far, but even then some of those great folks will take on more than their share of work. They can handle it to a point… But this affects their work quality, life quality, and motivation fairly quickly. Even if they feel motivated for months, eventually they’ll realize they’re doing more work than everyone else. In the military, I don’t get to just pay those people more as I’d want to do in other places.

I’ve never had a great way to think about this problem, but comparative advantage makes the answer clear.

Emily Oster went on to say:

I think that it is very tempting to constantly be thinking, well, the person who’s the best at the task should do it. That is not true. The person who - you could be the absolute best at every single thing, and you still shouldn’t do all of the things.

My takeaway is that,

I must consider the comparative advantages of people, for each work task, when assigning work

They cover other topics, like “opportunity cost” too, and that fits in to work assignment as well, but I just think of it more naturally.

Here’s one other very interesting Planet Money that talks about how comparative advantage affects the world, specifically with a market for bees that requires cross-country travel.