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11.29.2005

Marginal Revolution: Pledge Drive

Why I like economists: they give explanations like these:
Why are we asking for donations? MR is never going to be a paying venture but donations help us to cover our costs. More importantly, donations help to solve a serious economic problem. Efficiency says that goods with zero marginal cost should have a zero price but without prices not only is the incentive to produce diminished but so is information about what to produce. (See Coase's 1946 classic, The Marginal Cost Controversy, JSTOR). Donations allow prices to be set at MC while at the same time providing a (noisy) signal about where true economic value lies. In particular, Tyler and I know that we can appropriate more of our marginal product from professional work than we can from blogging yet it is conceivable that our marginal product is higher in blogging. Thus, to decide how much to invest in this venture we markup donations to get an estimate of our social value and we put positive weight on social welfare in our utility function.

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