1. The FAA is asking for a budget for a prize fund for advances in "space access" associated with commercial space transportation. Prize funds make good sense when you have market failures associated with innovation. Joe Stiglitz has talked a lot about the economics behind them. Prize funds also played a role in American industrialization - they were very popular in a variety of industries in the early republic. This is classic American industrial policy.
2. Southwest Research Institute has announced contracts today to fly a payload of three scientists into sub-orbital space. Apparently this is the first time this sort of thing has been contracted out by a private firm. This is a very important development - the division of labor is limited by the extent of the market. Clearly we're seeing a growth in demand sufficient enough not just for NASA to contract out, but for private companies to as well. That means greater division of labor, greater specialization, and more innovation.
Monday, February 28, 2011
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I think the term market failure is so fluid as to be useless. So now it is a "market failure" that we don't have "space access?" What next? Will it be a market failure for us not to have giant floating pink sheep?
ReplyDeleteEither I'm not understanding your question or you're not understanding what I mean when I say "market failure".
ReplyDeleteIt could be both, but I'm determined to be an optimist and assume that only 50% of the population at risk is affected here.
Market failure means "stuff I don't like" IMHO.
ReplyDeleteOh - well then that explains it. That's not how I'm using the term.
ReplyDeleteI'm not sure whether you've written much about Elon Musk before, but - apart from being a pretty incredible guy in of himself - his SpaceX venture is aimed at making private sector incursions into the space game, precisely because he thinks his private company can overcome some of the bureaucratic inefficiencies plaguing NASA, et al. (He actually makes some references to this during an amusing interview with Stephen Colbert for those who haven't seen it. Another interview where this is made even more explicit is here.)
ReplyDeleteMy own opinion is that space travel has very strong parallels with electricity production. No private organisation was/is as well placed as government to achieve the vast economies of scale needed to research, finance and disseminate electricity production on a national level from the outset. (Recall that the power grid fits the textbook definition of a natural monopoly.) That's why no large electricity market has been effectively "liberalised" from the get go... There has always been a necessarily transitory phase from a singular (state) company to one of many competitors.
However, once these initial barriers have been overcome by a singular national provider, then that opens up the possibility for efficiency gains via vertical and horizontal unbundling (i.e. asset sell-off) and the introduction of competitive forces.
I don't know many details about Musk in particular, but of course I know about Space X.
ReplyDeleteI would agree almost completely with your thoughts on the role of the private sector in space. I would add one caveat - this is different from electricity or other investments that we can think of as having major start-up costs, and more like colonization efforts. Given a colonization effort, market forces will provide the tools. But what market forces are going to drive a colonization effort? Most of the benefits are external to the investor or even the current generation, so you're going to have underinvestment. If you have underinvestment in Martian colonies you're going to have lower demand for interplanetary space flight capability (which, I agree, is going to be entirely a private affair in short order) than you would at optimality.