Maybe I’m stating what is now obvious, but this applies to shortages of other outputs as well.
Think of potential producers for a good as a portfolio of options, one or more of which is exercised when you need to actually have it. You want to have multiple options available to reduce your risk that no producer will be able to deliver
When the cost of transportation is high, production has to be local to you, so it is more likely that all your options have correlated risks. As the cost of transport drops it gets possible to pick up options from producers further away, so the risks de-correlate. Trade networks get larger.
But that’s not all good. Transport disruption is always a risk in trade, even when it’s very local. But as trade networks get larger and the transport network has more moving parts, coordination issues increase.
Also, you’re trading decorrelation of risk for the possibility of becoming critically dependent on suppliers far away from you. Which brings us back to my original post.
This is a detail of world modeling that (a) is obvious once said and (b) I had totally missed.
This’ll have significant effects on my models of a lot of complex systems. And on what kind of life I work on building.
Thank you.
Maybe I’m stating what is now obvious, but this applies to shortages of other outputs as well.
Think of potential producers for a good as a portfolio of options, one or more of which is exercised when you need to actually have it. You want to have multiple options available to reduce your risk that no producer will be able to deliver
When the cost of transportation is high, production has to be local to you, so it is more likely that all your options have correlated risks. As the cost of transport drops it gets possible to pick up options from producers further away, so the risks de-correlate. Trade networks get larger.
But that’s not all good. Transport disruption is always a risk in trade, even when it’s very local. But as trade networks get larger and the transport network has more moving parts, coordination issues increase.
Also, you’re trading decorrelation of risk for the possibility of becoming critically dependent on suppliers far away from you. Which brings us back to my original post.