Monty Panesar and market failure

It looks as if Monty Panesar will not play in the first test. Chris suggests this might be because his superior bowling skills will be wasted as Geraint Jones can't catch a spinning ball.
This raises an important economic problem - of indivisibilities in the production function. Imagine an extreme case in which spinners only take wickets through stumpings or caught behinds. If the wicket-keeper were useless, the spinner's skills, however great, would  be wasted. In this case, the production of Australian wickets is indivisible; it requires two inputs (a keeper and spinner) each of whom is little use without the other.
Such indivisibilities have important implications:
1. They can cause increasing returns to scale. If Monty did play, the marginal product of a an extra, good, keeper would be very high. Of course, England can't field more than 11 players. But ordinary companies, faced with similar indivisibilities, can. If one worker becomes very productive only if he works with an expensive machine, the firm should buy the machine.
This, of course, means that larger firms can be much more efficient than smaller ones, who can't overcome such indivisibilites. And this, in turn, means that competition between firms might not exist. As Herbert Scarf  showed here (pdf):

In the presence of increasing returns to scale in production the competitive equilibrium will typically fail to exist.

2. They help explain the existence of firms. If two assets only work well together, each has an incentive to threaten to pull out in order to bargain for a bigger share of the output. This is the hold-up problem. One natural solution to this is for the assets to be owned and managed together. If the threat of workers walking out is greater than that of capital moving, this implies that the assets should be owned by workers. This is why there's a case for worker ownership of public transport.
3. Indivisibilities can reduce incentives to acquire skills. There's little point spending years training to be an engineer, if there'll be no manufacturing industry when you qualify. This can lead economies into a "low skill equilibrium." People don't learn skills because they fear firms won't have the technology that requires skilled workers, and firms don't invest in technology, because they fear there'll not be the skilled workers to use it.
4. There's an ethical issue. Where there are indivisibilities, a worker's marginal product depends upon more than his own skills; when England have a  useless wicket-keeper, Monty's marginal product is low. But if they had a good one, it would be high.
This in turn suggests that it's too simple to say that it's "fair" to pay someone their marginal product. Is it really fair that a man's pay can vary widely through factors beyond his control?
Monty's likely exclusion from the England team isn't just bad news for all good Englishmen, then. It's also troubling for the more simple-minded free-marketeers.

Comments

[Igor Belanov]

Wouldn't most managers use modern, efficient machinery rather than old stuff that's been out of repair for months?

[Sam]

This in turn suggests that it's too simple to say that it's "fair" to pay someone their marginal product. Is it really fair that a man's pay can vary widely through factors beyond his control?

Of course it's fair, unless you have an incredibly utopian definition of "fair". Let's say that I am a highly skilled designer of garden gnomes and the like. If the public acquire a taste for kitsch tat, I'll make a lot of money. If the public has some aesthetic sensibilities, I'll be in the poor house. I have no control over the public taste. Is it "unfair" that skilled makers of buggy whips should find themselves discomfited by the introduction of the automobile?

[Maynard Handley]

I heard a talk by Coase in which he claimed
"2. They help explain the existence of firms. If two assets only work well together, each has an incentive to threaten to pull out in order to bargain for a bigger share of the output. This is the hold-up problem. "
that this was specifically NOT the case. He had been talking to car makers in the US and the manufacturers of something very specialized that was only of use to one car-making firm (stamped auto-bodies or something), and he concluded that although it would naively appear that they should be one firm, they managed the hold-up problem quite fine using contracts.

He further claimed that his theory of why firms existed was frequently explained in this way, but this was not what he meant. So far so good. Unfortunately I'm clearly rather dumb because I could not quite understand exactly what he did then think was the justification for the firm (cost of transactions and information flow?)

[Paulie]

Oddly, the Unions never show more than a token interest in worker-control. Ministers in the 1945 Labour government couldn't interest Miners leaders in the idea and I've discussed it with well-placed members of the UK rail Unions and been told that they aren't interested. I can hazard a few slightly misanthropic explanations for this, but nothing that I'd be able to defend for very long.

Any ideas?

[dsquared]

the economics here is excellent, but I cannot let Chris's loony ideas about cricket go unchallenged. Panesar hasn't been picked because he can't field, can't bat and his bowling is really not good enough to stand on its own. He's a left handed fingerspinner which is a rarity, but he doesn't have much variability and would have been found out really badly against Australia. One good test in India on really favourable pitches does not make someone an automatic pick.

[ManBearPig]

Oddly, the Unions never show more than a token interest in worker-control. Ministers in the 1945 Labour government couldn't interest Miners leaders in the idea and I've discussed it with well-placed members of the UK rail Unions