commonplace book redux

When I suggest that supporting technological development may be an efficient way to improve the world, I often encounter the reaction:

Markets already incentivize technological development; why would we expect altruists to have much impact working on it?

When I talk about more extreme cases, like subsidizing corporate R&D or tech startups, I seem to get this reaction even more strongly and with striking regularity: “But that’s a for-profit enterprise, right? If it were worthwhile to spend any more money on R&D, then they’d do it.” […]

If I notice a promising opportunity and believe that I can capture all of the gains from pursuing it, I might suspect that the market would have scooped it up if it were really as good as it seems. But if I can only capture some of the gains, this reasoning falls apart. If the opportunity involves diminishing returns and allows capturing only a tiny fraction of all of the social gains, then it might be worth investing a tiny bit for profit, leaving significant room for further altruistic investment. I think the existence of diminishing returns is really doing the work in this argument; it will generally cause even very good altruistic opportunities to be very profitable at first, despite a huge gap between social value and profit potential.

Paul Christiano Altruism and profit, Rational altruist, July 11 2013

This part can be hard to follow: “If the opportunity involves diminishing returns and allows capturing only a tiny fraction of all of the social gains”. The explanation is: the more convex the demand curve (quickly diminishing returns), the greater the fraction of total surplus captured by a monopolist. The more concave the demand (slowly diminishing returns), the less the fraction of social surplus captured by a monopolist. See Malueg 1994 (Monopoly Output and Welfare: The Role of Curvature of the Demand Function, Proposition 2). The same result extends to Cournot oligopoly (Anderson and Renault 2001, Efficiency and surplus bounds in Cournot competition).

And why does Paul say “very profitable at first”? Because every natural monopoly must end someday: patents expire, know-how diffuses, capital depreciates, and so on.