Nation of Beancounters

The efficiency effectiveness trade-off

Posted in Uncategorized by Navin Kumar on January 17, 2013

Warning: technical, has personal anecdote.

I had to pay my hostel fees today. The ATM is halfway between my hostel and my college. I could have just gone to college, as I normally do, and withdrawn the money on the way home. Additional distance traveled: 0 meters. However, I might forget, or get lazy, or end up being in college later than the office is open – and thus end up not paying my fees. So I walked to the ATM, withdrew the money and paid my fees. Additional distance traveled: 400 meters.

The first method, picking the money up on the way home, was more efficient. The second was more effective.

Formalism

Let X be some task. It is indivisible i.e. it is either done or not done, and nothing it between*.

A method is said to be more efficient than if it requires fewer resources to perform task X.

A method M is said to be more effective than N if the probability that task will be performed is higher under M than under N.

Note

Missing the efficiency-effectiveness trade-off is one of the intellectual vices of libertarians. The Japanese ministry of industry – MITI – is one of those government organisations that are credited with being effective, if not efficient. Markets may under-supply certain goods – education, for example – relative to the optimum, due to credit constraints. They are not effective  in supplying the optimum quantity of the good. Governments may then try to supply it, but end up wasting resources relative to the private sector production of the good. To be fair, many libertarian policies – school vouchers, for example – try to make the market effective by using efficient methods (cash transfers instead of directly supplying goods and services).

*It is not necessary that X be a task or that it be indivisible. For example it could be the optimum quantity of a good supplied.

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2 Responses

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  1. Skand said, on January 17, 2013 at 5:02 pm

    I think the difference is fabricated. I could simply say that there was some value attached to paying your fees today rather than paying it tomorrow. You chose to go that extra 400 meters because you felt that the delay was not viable. In so much as time and effort (or leisure) themselves are resources, you did in fact make the efficient choice.

    • Navin Kumar said, on January 17, 2013 at 6:00 pm

      The difference is fabricated, for illustrative purposes.

      All behavior can be interpreted as utility maximizing. But, as they say, people aren’t utility maximizers. There’re times when you tell yourself “It’s better if I did it like this”, ignoring the fact that it’s also less likely to happen. People don’t think about uncertainty enough; think of this as an attempt to get them to.


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