It is difficult, this economic theorizing business

One of my favorite questions to ask in classes on introductory economics is this one:

“By a show of hands, how many of you have a BSNL sim-card?”

The answer is rarely more than five percent, if that, and my little stunt works every time. For obvious reasons, of course: even passionate defenders of the public sector often reveal their preference through action, if not always through their statements. Free markets work, the private provisioning of goods is demonstrably efficient and the price mechanism is a wonderful, wonderful thing.

Until, every now and then, when it is not.

April 2021 is one of those times.

And to make sure we could then produce those vaccines at scale, “X” brought up an idea that came from the Biomedical Advanced Research and Development Authority when Rick Bright was its director. The authority proposed subsidizing the construction of private manufacturing facilities as long as the government has the authority to take them over in times of pandemic.
If all of this sounds as if it’ll require a lot of government action, well, it will.

Pop quiz, particularly for those of you who follow economists online. Identify “X”.

“X” is, of course, that well known pro-government socialist, Alex Tabbarok.

Sarcasm alert: Prof. Tabbarok is as much of a pro-government socialist as Rahul Dravid is a goonda. But as with Rahul Dravid and goondagiri, so also with Alex Tabbarok:

“Ninety-nine years out of 100, I’m a libertarian,” Tabarrok said with a laugh. “But then there’s that one year out of 100.”

And it is that kind of a year, 2021 – for both Alex Tabbarok and Rahul Dravid. It is a year in which the role of the government is more important than perhaps ever before, given what is at stake: public health. Public health is, by definition, a public good:

And the role of the government in this case is to do all it can to ensure the provisioning of that public good – in this case, the vaccine.

Hold on to this thought, and we’ll come back to it.

Here’s a hypothetical scenario: a joint family is considering ordering in dinner this coming Saturday, and mutton biryani is the unanimous choice1.

The restaurant this family is considering ordering from will deliver a jumbo family pack (serves 8) for two thousand bucks. Single serves of the same dish are also available, at three hundred each. There are eight family members.

Should the family order a family pack, or single serves?

Here’s another (not so) hypothetical scenario: Until a couple of years ago, Holi celebrations in our housing society would always mean having the neighbourhood chaatwala set up shop in the lobby. Anybody and everybody who was here playing Holi was welcome to have as many plates of chaat as their hearts desired. No payment was involved, of course, because the payment was made in advance, in bulk.

Does this make sense, or would we be better off paying for each dish as we had ’em?

Hold on to this thought too, and we’ll come back to it.

Final thought experiment (I promise!): let’s say this chaatwala is the stuff of legend. Mindblowing panipuris, outstanding bhelpuri and tokri chaats that have the potential to rule the world. We would like to have this demi-god of chaat set up shop in our society, but so would ten other housing societies in our neighbourhood.

If you were this maestro of a chaatwala, which society would you choose to shower with your culinary blessings? The housing society with the cutest kids, or the kindest grandparents, or the prettiest flower-beds? Or the one with the most number of lived-in apartments – that is, the one that was likely to give you the most business?

And conversely, if you were part of the largest housing society in the area, and you and everybody else including the chaatwala knew this to be a fact, could you maybe get a bit of a discount on the deal? Would you, at the very least, want to try?

Can I cheat a little bit and include one final thought experiment? What if eating that chaat wasn’t just good for your palate? What if it also, somehow, conferred upon you the mystical, magical ability to not infect your neighbours with some disease – say, a virus?

Now let’s combine all of the above, and resort to econo-speak where the vaccines are concerned:

When faced with a largely inelastic supply curve for a good, fragmenting demand into separate constituents means you lose out on bargaining power. When the good in question is one with large positive externalities, procuring as much as possible as quickly as possible becomes a moral imperative. The best way to do that is to have the central government procure centrally, and that right away.

In fact, if it is a question of conferring those mystical, magical abilities upon as many citizens as quickly as possible, maybe the largest housing society the government should get that chaatwala to share the recipe with other chaatwalas in the market.

All housing societies should get as many plates of chaat as quickly as possible, but the negotiating should be left to just one extremely large entity. That negotiating should include potentially sharing the recipe for that delicious, life-saving chaat.

Or, to close the loop on the metaphors:

Every state should get as many vaccines as quickly as possible, but the negotiating should be left to the central government. That negotiation should include the possibility of sharing the patent for the vaccine (and more besides). And oh, remember that the truth lies somewhere in the middle. There is indeed a role for the private sector here: distribution and last mile delivery can and needs to be an all-hands-on-deck affair. Procurement? Not so much.

Is this a free-market solution? No.

Does a non-free-market solution stand a chance of being an optimum solution?

As Prof. Tabarrok points out, every hundred years or so, the answer is yes indeed.

Very much so.

  1. It’s a hypothetical scenario, so we’ll assume away Arrow’s Impossibility Theorem[]