Saturday, June 26, 2010

Jevons Paradox Warped Into Enigma

Something interesting occurred to me in regards to Jevons Paradox. Not a new observation I'm sure, but new to me.

Wikipedia defines the Jevons Paradox like so: the proposition that technological progress that increases the efficiency with which a resource is used, tends to increase (rather than decrease) the rate of consumption of that resource.

Jevons showed that improvements in the conversion efficiency of steam engines tended to result, counter-intuitively, in an increase, rather than a decrease, in the amount of coal used. This observation has been used as an argument against increasing efficiency standards because these standards will actually lead to more energy use.

The problem with this interpretation is that it's wrong. Although conversion efficiency might seem to be the critical variable leading to increased consumption this isn't the case. The critical variable is the economic efficiency of conversion. Jevons indicates this in the preface of The Coal Question.

"The fact is, that a wasteful engine pays better where coals are cheap than a more perfect but costly engine."

It is well recognized that what pays more will be done in preference to what pays less. If efficiency doesn't pay, don't do it, if it does, do. There must always be this compromise in strategy because the matter of most importance is not conversion efficiency. It tends to be, this is true, but it need not be. The matter of most importance is the economic efficiency of conversion.

And so, I would reformulate Jevons Paradox more pointedly as: Economy of consumption tends to increase consumption.

How is it that efficiency has taken the place of economy and made this Paradox such a big deal? I think this switcharoo is best explained by the fact that calculating the efficiency of an engine is a straightforward matter for an engineer but there is no equivalently compact metric in economics - there's no ideal 100% perfect investment to compare everything to. Efficiency is an E word. Economy is an E word. Let's just just ummm... Put in efficiency where economy should be and see if nobody notices.

I'm not trying to steal Jevons' thunder. He knew this stuff, at least I think he did. Now I do too.

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