OME_10_The Networked Economy microeconomics

class ppt for microeconomics

1. Organization and Market
Economics
Session 23-24
The Networked Economy

2. Is Data the New Oil?
•The frontier of the economy
has become knowledge and
innovation.
•Information revolution has created the
scope for knowledge economy where
capital is not a constraint anymore.
•Matching markets in case of repugnant
markets is another
phenomenon.

3. Examples of Network and
Knowledge Economy
•Uber, the world's largest taxi
company, owns no vehicles.
•Facebook, the world's most
popular media owner, creates
no content.
•Alibaba, the most valuable
retailer, has no inventory.
•And Airbnb, the world's largest
accommodation provider, owns
no real estate.

4. Case Study: IT Industry
•Why have India’s IT Industry slowed down?

5. Case Study: IT Industry
•In the four quarters before the collapse of Lehman
Brothers, Infosys saw revenue increase an average
29% in constant-currency terms.
–Back then, Dublin-based Accenture’s growth was
just half as high.
•the dominant trio of Tata Consultancy,
Infosys and Wipro between them had
1.5 times more workers doing digital stuff
last year than Accenture.
•But the revenue they garnered was
40% less than what the latter chalked
up from newer technologies.
•Lack of Innovation is the chief reason.

6. Two Kinds of Innovation
processes
•Incremental Innovation
–Collaboration is the key.
–A lot of knowledge is kept as tacit.
–Establishment continues their story.
•Radical/Disruptive Innovation
–Competition is the key
–The focus is on codified knowledge (for patent
purpose)
–Establishment is displaced!

7. Repugnant Markets
•Why slave-trade and indentured labourers
are banned?
–“The material (not psychological) condition of
the lives of slaves compared favorably with
those of free industrial workers.”
–Slaves were paid 90% of the salary.
•The asymmetric information is
simply too large for regulation and
correction.

8. Repugnant Markets
•Sale of Human Organs
•Adoption
•Child Labour
•Predatory (Mortgage) lending

•In these cases, we need a
matching framework.
–Kidney Exchange

9. Kidney Exchange
•Right now in the United States, there are
100,000 people waiting for a kidney.
•Many cases there is a kidney donor for
someone who requires a kidney but the
type of the kidney does not match for the
intended recipient.
•A good first step thinking is
letting people swap whenever
possible!

10. Alvin Roth (2012 Nobel)
•Roth proposed an algorithm that
facilitated kidney exchange by multiple
times.
•The exchange algorithm looks for long
chains and offers a way
to prompt matching.
•This algorithm has
facilitated good life for
many thousands.

11. School Choice
•In India, schooling is largely a middle class
concern and most of the good schools are
private.
•In US, the public schools are quite
common destination for children.
•School allocation is a critical decision for
the students.
•Students have some preferences.
And, schools too!

12. The Boston Mechanism
•In Round 1 only the first choices of the students
are considered.
•For each school, consider the students who
have listed it as their first choice and assign
seats of the school to these students one at a
time following their priority order until either there
are no seats left or there is no student left who
has listed it as his first choice.
•Round 2: Consider the remaining students. In
Round 2 only the second choices of these
students are considered.
•Round k: Only the k
th
choices are considered.

13. Simulation Time!
•Let’s simulate the school allocation
problem.
•How about a random match? What is the
efficiency of the algorithm.
•How about a “Boston School Mechanism”
match? What is the efficiency of the
algorithm.
•Is “Boston School Mechanism” a strategy
proof mechanism?

14. SE7EN SENSES
Organization and Market Economics

15. I.Demand and Supply framework is must for
analysing socio-economics problems!
II.Accounting is not economics!
III.Free entry serves economic growth.
IV.Economic growth is not socially efficient!
V.Monopolies do serve the economy, a lot of
the times!
VI.Information sharing is key to building an
institution.
VII. Knowledge Economy demands efficient
matching process.

16. Thank You