How confident are you that the price of haircuts will increase the more haircuts there are in the long-run? For example, do you expect the real price of haircuts to rise dramatically as the population of a country grows dramatically? I do not.
This confuses supply and demand. The most important factor of production in haircuts is human labour. If you double the population of a country, then you double the number of haircuts demanded, but you also double the amount of labour supplied. Similarly, oil prices wouldn’t rise if oil demand doubled… but every oil field doubled in size and output rate.
You are right that some industries may be decreasing-cost at certain margins, and computer games sound like a plausible candidate due to the low marginal cost. However, in the extreme, every industry is increasing-cost, simply because of resource scarcity (consider the situation if computer game demand was so high that 90% of the population worked as game developers). This is why the default assumption is increasing-cost.
As I’ve shown from the standard economics citations, they are actually with me in not assuming that industries are increasing-cost (unless you’re arguing that AmosWEB and Policonomics do not represent the standard economics view).
Neither of these publications make any suggestion as to whether most industries are increasing or decreasing cost in those articles, as far as I can tell. The fact that they don’t make such a suggestion doesn’t mean that we shouldn’t have a prior.
The most important factor of production in haircuts is human labour. If you double the population of a country, then you double the number of haircuts demanded, but you also double the amount of labour supplied.
To get around the objection of increasing labor, let’s assume instead that everyone in the country decides to permanently get their hair cut twice as often as before. What do you expect the real price of haircuts to be in 10 years? Significantly higher, about the same, or significantly less? My prior is “about the same” until I have more data.
More generally (and naively), if I had to guess whether a given industry is increasing-, constant-, or decreasing-cost, two factors I would consider are:
1) How important to the cost of the product are inputs that are finite? How much of the market for those inputs goes toward making the product (as opposed to other uses that might substitute away from that input if the price increases)?
2) What economies of scale exist in the production of the product? To what extent will greater demand-per-person allow firms to approach the maximally efficient scale?
I have not seen these (or other relevant) factors used to advocate that animal product industries in particular should be assumed to be increasing-cost. (However I do appreciate your attempt to argue that our prior should be that all industries are increasing-cost in the absence of better evidence, which I argue against in a separate comment.)
You’re the first person who disagrees with my conclusion but is willing to admit that some industries will be decreasing-cost (wherein we should expect greater than 1:1 effect on production); that is very refreshing!
in the extreme, every industry is increasing-cost, simply because of resource scarcity (consider the situation if computer game demand was so high that 90% of the population worked as game developers).
Yes, I agree in the extremely-large case. What about the extremely-small case? It’s very hard to think of a fledgling market for which the average price would be higher if the market produced 100 units instead of 1 unit. So I think that the vast majority of markets will be decreasing-cost when they’re arbitrarily small, and increasing-cost when they’re arbitrarily large. What about in between? How do we know where on the spectrum an industry is?
I agree we need a prior. If something could be positive, neutral, or negative, and I have no evidence of which it is, my default meta-prior is neutral. Obviously that is an extremely weak prior (ie I’m very open to being convinced it should be something else), but nothing in the pieces I quoted justifies an increasing-cost prior (they just discuss short-run market dynamics). Your “low hanging fruit” argument comes the closest because it’s a valid reason that points in one direction, but it is incompletely argued so far (the “in the extreme” argument is unconvincing since the same can be said of an opposing force).
Without looking at data, my prior on meat production being an increasing cost industry is extremely high.
Meat production is a commodity product. Commodity products compete mainly on price, and so we should expect the industry to be fairly normal (i.e. the sort of industry discussed in econ 101 courses) in terms of competition, costs, etc.
Meat has a number of costly inputs, including feed, water, land and labor. If you have several commodity inputs, you can expect that at least one of them would be a potential bottleneck to increasing the scale of the industry at constant cost. For example, we know that water usage is definitely increasing cost, because the next efficient option after depleting our reservoirs is desalination which is stupid expensive on agriculture scales (and this flows into feed prices).
Meat production is an extremely large and mature industry. We should expect that large and mature industries have scaled up to the point where marginal costs are increasing, because they have had the time and intelligence invested in them to pick the low-hanging and high-hanging productivity fruit.
People who eat meat would like to eat more of it, if only it were cheaper. For example, if MacDonalds introduced a third-pounder for the same price as a quarter pounder, most people would buy it. Since this situation exists, it is probably difficult to provide meat at cheaper prices holding other relevant factors stable. One can imagine another industry where people have no particular desire to purchase more of the given product if the price were lower, such as child car seats and so the industry is limited in size before it achieves minimum cost scale.
Of course, in some sense this dodges another question, which is what is your prior probability prior to. If you had never heard of economics, and were just talking about abstract categories which industries either were a member of or were not a member of, then perhaps you could presume a 50% meta-prior. If someone were to take all the industries in the world at a very fine-grained level, and they presented it to you, perhaps then a 50% probability would be warranted as well. To be honest, I’m not sure what the probability would be in that situation, if you were looking at, like beekeeping and video game production and taxi driving as example categories. But from that point to the point of meat production specifically we have many pieces of knowledge that become our prior before we actually get to the collecting real data. My prior of an industry being increasing marginal cost, weighted by the number of times it gets discussed in newspaper articles, or weighted based on the amount of revenue it generates per year, is much higher than 50%.
Edit: I see that this is somewhat repetitive of what you wrote in your other comment. Oh well, it’s already written.
Great! This is the only ‘complete’ argument I’ve seen that our prior for animal products industries should be that they are increasing-cost rather than constant-cost. I’m not as confident as you seem to be, but that’s more of a quibble at this point, and I’m glad we agree on the meta-prior!
The challenge then is to convince Norwood and Lusk that we want to know the long-run impact of consumer choices on animal production, not the short-run! They’re clearly estimating short-run elasticities since (a) their supply curves are way too steep, even for an increasing-cost industry, and (b) they explain their elasticities with an explanation that is irrelevant to the long-run:
Because it takes a year between the time a cow is bred and the time her calf is born, and then it also takes a long period before that cow can be transformed into beef or produce milk, it is difficult for beef and dairy producers to alter production according to changes in consumer preferences.
This confuses supply and demand. The most important factor of production in haircuts is human labour. If you double the population of a country, then you double the number of haircuts demanded, but you also double the amount of labour supplied. Similarly, oil prices wouldn’t rise if oil demand doubled… but every oil field doubled in size and output rate.
You are right that some industries may be decreasing-cost at certain margins, and computer games sound like a plausible candidate due to the low marginal cost. However, in the extreme, every industry is increasing-cost, simply because of resource scarcity (consider the situation if computer game demand was so high that 90% of the population worked as game developers). This is why the default assumption is increasing-cost.
Neither of these publications make any suggestion as to whether most industries are increasing or decreasing cost in those articles, as far as I can tell. The fact that they don’t make such a suggestion doesn’t mean that we shouldn’t have a prior.
To get around the objection of increasing labor, let’s assume instead that everyone in the country decides to permanently get their hair cut twice as often as before. What do you expect the real price of haircuts to be in 10 years? Significantly higher, about the same, or significantly less? My prior is “about the same” until I have more data.
More generally (and naively), if I had to guess whether a given industry is increasing-, constant-, or decreasing-cost, two factors I would consider are: 1) How important to the cost of the product are inputs that are finite? How much of the market for those inputs goes toward making the product (as opposed to other uses that might substitute away from that input if the price increases)? 2) What economies of scale exist in the production of the product? To what extent will greater demand-per-person allow firms to approach the maximally efficient scale?
I have not seen these (or other relevant) factors used to advocate that animal product industries in particular should be assumed to be increasing-cost. (However I do appreciate your attempt to argue that our prior should be that all industries are increasing-cost in the absence of better evidence, which I argue against in a separate comment.)
You’re the first person who disagrees with my conclusion but is willing to admit that some industries will be decreasing-cost (wherein we should expect greater than 1:1 effect on production); that is very refreshing!
Yes, I agree in the extremely-large case. What about the extremely-small case? It’s very hard to think of a fledgling market for which the average price would be higher if the market produced 100 units instead of 1 unit. So I think that the vast majority of markets will be decreasing-cost when they’re arbitrarily small, and increasing-cost when they’re arbitrarily large. What about in between? How do we know where on the spectrum an industry is?
I agree we need a prior. If something could be positive, neutral, or negative, and I have no evidence of which it is, my default meta-prior is neutral. Obviously that is an extremely weak prior (ie I’m very open to being convinced it should be something else), but nothing in the pieces I quoted justifies an increasing-cost prior (they just discuss short-run market dynamics). Your “low hanging fruit” argument comes the closest because it’s a valid reason that points in one direction, but it is incompletely argued so far (the “in the extreme” argument is unconvincing since the same can be said of an opposing force).
Without looking at data, my prior on meat production being an increasing cost industry is extremely high.
Meat production is a commodity product. Commodity products compete mainly on price, and so we should expect the industry to be fairly normal (i.e. the sort of industry discussed in econ 101 courses) in terms of competition, costs, etc.
Meat has a number of costly inputs, including feed, water, land and labor. If you have several commodity inputs, you can expect that at least one of them would be a potential bottleneck to increasing the scale of the industry at constant cost. For example, we know that water usage is definitely increasing cost, because the next efficient option after depleting our reservoirs is desalination which is stupid expensive on agriculture scales (and this flows into feed prices).
Meat production is an extremely large and mature industry. We should expect that large and mature industries have scaled up to the point where marginal costs are increasing, because they have had the time and intelligence invested in them to pick the low-hanging and high-hanging productivity fruit.
People who eat meat would like to eat more of it, if only it were cheaper. For example, if MacDonalds introduced a third-pounder for the same price as a quarter pounder, most people would buy it. Since this situation exists, it is probably difficult to provide meat at cheaper prices holding other relevant factors stable. One can imagine another industry where people have no particular desire to purchase more of the given product if the price were lower, such as child car seats and so the industry is limited in size before it achieves minimum cost scale.
Of course, in some sense this dodges another question, which is what is your prior probability prior to. If you had never heard of economics, and were just talking about abstract categories which industries either were a member of or were not a member of, then perhaps you could presume a 50% meta-prior. If someone were to take all the industries in the world at a very fine-grained level, and they presented it to you, perhaps then a 50% probability would be warranted as well. To be honest, I’m not sure what the probability would be in that situation, if you were looking at, like beekeeping and video game production and taxi driving as example categories. But from that point to the point of meat production specifically we have many pieces of knowledge that become our prior before we actually get to the collecting real data. My prior of an industry being increasing marginal cost, weighted by the number of times it gets discussed in newspaper articles, or weighted based on the amount of revenue it generates per year, is much higher than 50%.
Edit: I see that this is somewhat repetitive of what you wrote in your other comment. Oh well, it’s already written.
Great! This is the only ‘complete’ argument I’ve seen that our prior for animal products industries should be that they are increasing-cost rather than constant-cost. I’m not as confident as you seem to be, but that’s more of a quibble at this point, and I’m glad we agree on the meta-prior!
The challenge then is to convince Norwood and Lusk that we want to know the long-run impact of consumer choices on animal production, not the short-run! They’re clearly estimating short-run elasticities since (a) their supply curves are way too steep, even for an increasing-cost industry, and (b) they explain their elasticities with an explanation that is irrelevant to the long-run:
It would still be decreasing cost since the marginal cost of serving an additional customer is the cost of him downloading a copy of the game.