Hi Amir, I believe we have two different topics here. Comparative advantage in traditional sense only cares about what is good choice right now; it does not include the considerations of future growth in skills. It kinda says, if you are 3× worse at X but only 2× worse at Y, don’t despair; you should produce Y and trade it for X, and this will be beneficial to both sides.
Actually, the considerations of future growth can be used as an argument against following the comparative advantage blindly. Like, maybe the reason why others are so much better at X than at Y is because “Y doesn’t have a future”. Perhaps practicing X improves your X skills significantly, but practicing Y doesn’t improve your Y skills at all. (X = technology, when you do it, you invent new methods, build new machines, train your employees; Y = agriculture, doing the same thing over and over again; of course this is oversimplification.) In which case perhaps you should sacrifice the short-term gains from possible trade and keep doing X anyway, until you level up enough that X becomes your comparative advantage.
But the full analysis would be quite complicated here, because we would need to know the learning curves for X and Y, your optimal strategy would depend on what other players would do… and if we are assuming a dynamic world, who knows, tomorrow a new Z might enter the game and completely change the situation. (Like, if the reason for your disadvantage is simply lack of practice, e.g. you are younger than other players, it might make sense for you to immediately switch to the new Z where everyone starts from zero.)
I wish I had some simple personal example of “not using comparative advantage because of strategic considerations”, but nothing specific comes to my mind right now.
Hi Amir, I believe we have two different topics here. Comparative advantage in traditional sense only cares about what is good choice right now; it does not include the considerations of future growth in skills. It kinda says, if you are 3× worse at X but only 2× worse at Y, don’t despair; you should produce Y and trade it for X, and this will be beneficial to both sides.
Actually, the considerations of future growth can be used as an argument against following the comparative advantage blindly. Like, maybe the reason why others are so much better at X than at Y is because “Y doesn’t have a future”. Perhaps practicing X improves your X skills significantly, but practicing Y doesn’t improve your Y skills at all. (X = technology, when you do it, you invent new methods, build new machines, train your employees; Y = agriculture, doing the same thing over and over again; of course this is oversimplification.) In which case perhaps you should sacrifice the short-term gains from possible trade and keep doing X anyway, until you level up enough that X becomes your comparative advantage.
But the full analysis would be quite complicated here, because we would need to know the learning curves for X and Y, your optimal strategy would depend on what other players would do… and if we are assuming a dynamic world, who knows, tomorrow a new Z might enter the game and completely change the situation. (Like, if the reason for your disadvantage is simply lack of practice, e.g. you are younger than other players, it might make sense for you to immediately switch to the new Z where everyone starts from zero.)
I wish I had some simple personal example of “not using comparative advantage because of strategic considerations”, but nothing specific comes to my mind right now.