economics for leaders incentives & innovation. economics for leaders incentives, innovation,...

Economics for Leaders


Incentives & Innovation


Incentives, Innovation, & the

Role of Institutions


Review: income of nations


Butterfingers


Review: income of nations


ERP-4: Institutions are the “rules

of the game” that influence choices.

Laws, customs, moral principles, superstitions, and cultural values influence people’s choices. These basic institutions controlling behavior set out and establish the incentive structure and the basic design of the economic system.


~1750

Review:Lesson from history:

Economic growth is the answer to poverty.

Why?

Productivity


The Secret to Economic Growth: Productivity

The output produced from a given The output produced from a given set of resources in a given period of set of resources in a given period of time. time.

Increasing productivity means that Increasing productivity means that greatergreater output is produced from a output is produced from a given set of resources in a given given set of resources in a given period of time. period of time.


Who has greater productivity?

Why?


ERP-3: People respond to incentives in

predictable ways.


What are the incentives to increase productivity?

Profits


Profit Defined

Total Revenue -Total Cost = Profit

Accountant: total cost = $ cost of productionEconomist: total cost = opportunity cost (cost of production Plus the next best alternative!)


Dan makes $75,000 as teacher

anticipates $100,000 as sports card dealer

Sports card revenues = $140,000Costs of doing business = $ 70,000Does Wendy make a profit?


Revenue - Cost = Profit $140,000 – $70,00 = $70,000

What did Wendy give up? $75,000 plus teaching job.


Entrepreneur

Who responds to the incentive of profit in markets?


The Entrepreneur is the:

Risk taker

Undertaker

Organizer

Innovator

Residual Claimant

(they get what is left—positive or negative)


The Entrepreneur gets the owners of labor and resources to cooperate in the production of a good or service and meets the terms of their involvement


Necessary instiutions for profits to occur:

Secure private property rights

Stable rule of law

Freedom to buy and sell in markets

Uncertainty/Risk


Profits Draw a Crowd...

QoD1

Quantity

Pri

ce

P

Q1 Q2

P1

P2

S2S1


The result:

Innovation

Cost cutting

Quality/product improvement


http://www.livinghistoryfarm.org/farminginthe50s/life_11.html


http://www.livinghistoryfarm.org/farminginthe50s/machines_plowing.html


Bottom Line – 40 Acres

4 Horse Team = 55.0 hours1936 Farmall F20 = 25.0 hours1956 Farmall 450 = 16.5 hours1997 Deere 8100 = 1.1 hours


http://www.youtube.com/watch?v=EYg-cHe79hI&feature=channel


http://www.youtube.com/watch?v=YwzelMxVkr0


Innovation:

Can be products OR processes


Top 25 (non-medical) Innovations of the Last 25

years1.The Internet2.Cell phone 3.Personal computers 4.Fiber optics 5.E-mail 6.Commercialized GPS 7.Portable computers 8.Memory storage discs 9.Consumer level digital

camera 10.Radio frequency ID tags 11.MEMS 12.DNA fingerprinting 13.Air bags

14.ATM 15.Advanced batteries 16. Hybrid car 17.OLEDs 18.Display panels 19.HDTV 20.Space shuttle 21.Nanotechnology 22.Flash memory 23.Voice mail 24.Modern hearing aids 25.Short Range, High

Frequency Radiohttp://www.cnn.com/2005/TECH/01/03/cnn25.top25.innovations/


Solar-powered light bulb is one Denver inventor's brilliant ideaBy Jason Blevins The Denver Post


.In his spartan Capitol Hill office, Katsaros explains how Nokero, the affordable, durable, sun-fueled light, can help the 1.6 billion people worldwide without electricity and wean them from burning dangerous kerosene lamps.

"We are so in need of light. Most people use candlelight or kerosene," says Marshall, whose company, Africana SunPower, hopes to introduce solar power to West Africa. "This product takes us out of darkness. With light we could study, we could cook. It will change people's lives. And it's affordable."Already Nokero bulbs are trickling into 33 countries, where tens of millions live without electricity. Bought in bulk, the bulbs cost about $6 each. Retail, they run about $15."We are running a very, very lean operation to keep retail costs low enough so the 1.2 billion people who live on $2 a day can afford the light," Katsaros says. "So every penny matters.“

A quarter of the world still burns fuel for light. Those burning lamps emit about 190 million tons of carbon dioxide into the atmosphere every year, the equivalent of emissions from 30 million cars or 1.3 million barrels of oil a day,


http://www.engadget.com/2010/06/09/nokero-debuts-rugged-rainproof-n100-solar-light-bulb-for-develo/


ERP-4: Institutions are the “rules

of the game” that influence choices.


Ease of Doing Business

Most DifficultNiger

Liberia

Eritrea

Venezuela

Chad

Burundi

Congo, Rep.

Guinea-Bissau

Central African RepublicCongo, Dem. Rep.

EasiestSingapore

New Zealand

United States

Hong Kong, ChinaDenmark

United Kingdom

Canada

Ireland

AustraliaSource: http://www.doingbusiness.org/economyrankings/


1.They make more goods and services available at lower prices.

2.The presence of other competitors (actual or potential) provides incentives for innovation

3.Markets provides opportunities for the poor as workers.

4.Markets provides opportunities for the poor as entrepreneurs.

Open Markets Benefit the Poor


Solar lightbulb to shine on developing world

Here's a bright idea for the planet. A Hong Kong-based company has introduced what it bills as the world's only solar-powered lightbulb with the hope of reaching millions of people with little or no access to electricity.

http://www.engadget.com/2010/06/09/nokero-debuts-rugged-rainproof-n100-solar-light-bulb-for-develo/


http://www.youtube.com/watch?v=QGj-KkjwXJY&feature=related

economics for leaders incentives & innovation. economics for leaders incentives, innovation,...

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