Talk

Economic solution to mundane problems

Free markets are great at solving lots of resource consumption problems. Sometimes, even when problems dont appear to fit the economic model the solution lies in free markets.

At one point in my past I was involved in building a distributed computer system which would replicate servers (resources) to locations with closer geographical proximity to the client. The system was designed to enforce a certain QoS (Quality of Service) and would replicate whenever the load on a server exceeded a threshold. However in order to prevent the rampant spawning of services around the server farm we built an economic model to constrain the replication. The load manager would enter an auction to buy time. Periodically a servers balance would be refreshed. The server would enter auctions with these tokens and would relinquish tokens when it won the auction. A server had rules that would help it decide how much to bid on an auction (based on load). This prevented a server from replicating out of control (since the tokens would be exhausted till the next refresh).

We think of phones, bandwith etc in terms of resources. We are prepared to pay more for broadband than dialup internet connections. We stay off the phone during the peak hours because we have limited tokens (minutes) during the peak hours. There are other resources that we dont think of in the same way. Roads are examples of a resource that we use without regard to the cost since the cost is pre-factored into our registration fees.

However if we were to consider roads as resources which require payment based on need and congestion it would alter our behavior. I am not sure it makes sense to make all roads and lanes toll based. I would prefer to have a few lanes toll based that I can use if the urgency of getting to my destination makes it worth my while to pay for it.

In Mexico the government has allowed private companies to build toll roads across the country. These roads are clean, well-maintained and expensive. The govt still has free roads which can be used who'd prefer to rough it out rather than pay for the good roads.

Forbes magazine has a good article on the free market solution to traffic congestion