Wednesday, October 7, 2009

Will The Invinsible Hand Change This Diaper?

I have another secret blog, I have been working on over the weekend. For the 5 readers of mine that don't know, my wife Marie is pregnant and I'll be a dad sometime around Thanksgiving. In the secret blog we are detailing our adventures as a "growing" family. If you are a friend and know me and haven't been invited to read the blog and want to read it send me an e-mail.

So back to the question at hand. This New Yorker cartoon quips "maybe the unseen hand of the market will change this diaper"

So will the market change a diaper? Yes, because typical problem associated with market failures (externalities, imperfect information, and monopoly) are resolved for diaper changing.

Babies create "smelly" externalities in their diapers and noise externallities (known as crying) . Perhaps the public optimal time until a diaper changes is less than when diapers are changed, but I doubt it. Luckily the parents or care taker also bear these externalities, so market force should have parents meet a child's demand for a diaper change.

In the case of imperfect information there may be some times parents do not know if a diaper needs to be changed (why are you crying?). But, generally I expect the demand for diaper changes can be verified (see smelly externalities).

Parents may hold duopoly power over the offer of diaper changes. However, most parents set the price of a diaper change at the total surplus maximizing price of zero.

Now if only I can find someone with a comparative advantage in diaper changing who wants an economics lecture.

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