Analyzing F.A. Hayek (1945) The Use of Knowledge in Society and Beekman and Kench (2012)
Tampa Bay Water Solution Simple: Charge Heavy Users More.
ESHITA GUPTA 1963238
5th September, 2014
The Use of Knowledge in Society:
Hayek in his paper The use of knowledge in the society discusses two major points, a problem to be solved and an already developed phenomena to derive solution for the problem. The difference between the centralized planning authority and a decentralized planning authority is highlighted arguing about the fact that which out of the two can utilize the existing knowledge more efficiently. Arguing against a centralized planning authority to derive the solutions of problems, they would have to gather information from its sources, all of which have unique views of the situation and may even conflict with each other making it difficult for them to completely understand the localized special situation and thus make any decision. And so, is this mechanism robust enough to cater for the dynamism of the society?
When compared to the centralized planning authority, a decentralized authority is more effective in solving local problems as they have the advantage of having local information and knowledge about the problem and the implications of their solution. But the problem still remains since the decentralized society cannot decide on the basis of limited knowledge about the facts of the immediate surroundings. So, the real and ultimate solution is the price system. A price system can be defined as attaching a numerical index to each scarce resource. It is the perfect indicator of availability of a resource. The price of the resource which is scarce and valuable will be higher than that of a resource in abundance. To further extend the concept, incurring losses by utilizing some resources as inputs implies inefficient use of those resources and profit indicates that the resources are used efficiently and in the right manner. Inflation in prices of certain resources makes people use the substitutes of those resources or drives the necessity of conserving the resources which can be defined as the efficient usage of resources.
To Summarize the content, the problem is defined as 'how to secure the best use of resources' and not 'how to allocate the given resources'. The planned market is not robust enough to face challenges of dynamism. The best solution is the price system i.e. a coordinated automatic system which directs the people to act in their best interests and automates efficient use of scarce resources.
Water Problem Solutions in Tampa:
Robert L. Beekman and Brian T. Kench propose the solution for the water scarcity problem in Tampa Bay in 2012. Due to severe drought, the water supply has diminished forcing the people to limit the frivolous use of water. The solution to the water scarcity problem was the price mechanism which enforces increase in per-gallon rate of the water bill beyond the basic usage tier (lowest tier) when the drought hits. A survey done in 2005 by Swiftmund shows that water usage is price elastic i.e. increasing price makes the consumers to consume less of water and drives the necessity for conserving water.
The basic purpose of the pricing system is to discourage the frivolous usage of water and not effecting need based consumption or consumers. The only limitation to the solution is the inelasticity of wealthy consumers towards the pricing system since higher