Sunday, December 26, 2010

Unobtainium and market collapse

Nick is throwing more Einstein balls at my Bohr bat, good pitches too.
In this case he posits the demand for unobtanium with a zero supply. My comment there was incomplete, I decided, so I repeat things here and expand on a market that collapses to rank 1.

Let me make the basics.  If there is a demand for unobtanium then there must have been purchases of it in the past (this is entanglement) .  Hence, by the Canadian interpretation, there must be a residual forecasting error for the previous unobtainium market, and that forecasting error would be one quant of unobtanium remaining, for the given market rank.

So we must assume that a pre-existing production chain for unobtanium existed, and that chain when through a series of precision collapses, N,N-1,....1; until we now have the situation that one person has one unit of unobtanium.  What does he do?

He makes electricity (unobtanium is for reactors?) and sells that, he vertical integrates the specialization.  Bringing us to the DeLong smack down by his former teacher.  DeLong posits scarcity of commodities leads to increased production by incentives:
It [ownership] solves the problem of production--what commodities we should try to make more of. Individuals look forward into the future.
But his teacher corrects:
it solves the problem of incentives--of how to induce people to set to work figuring out how to make those scarce, rival, excludible commodities that demanders most value. Individuals look forward into the future.

I go with DeLong, the issue is production.  When the market collapses, the issue is vertical integration so as to produce the products made from the commodity.  Leading us to the quantum view of specialization.  Longer supply chains allow specialization of products on the margin.  I have no model at the moment, but I will be webosphere searching for the solution, but I think the solution will be to frame specialization as a form of quantization..

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