The Marginal Cost of Perfection
By David Henderson
In my Executive MBA class, I use The Economic Way of Thinking by the late Paul Heyne, Peter Boettke, and David Prychitko. In a recent problem set, I used a question from the chapter on externalities. The authors have a graph with $ cost per car per year on the vertical axis and percentage reduction in emissions on the horizontal axis. The curve is exponential. Here’s the question I asked:
Why does the curve rise slowly at first and then rise more steeply as the percentage reduction in emissions gets closer to 100%? Is this a peculiar characteristic of automobile exhaust-control systems or is it a more general relationship? Explain.
One of my students, a Navy doctor, gave this answer. [She gave me permission to use it.]
Perfection is unattainable. The more you work at reducing emissions there is diminishing marginal productivity. The closer you get to perfection the harder it gets to attain it and this costs more money. This is a general relationship–for example in screening for cervical cancer at Naval Hospital Camp Pendleton. 1 year ago we had 6300 patients who needed to be screened. We added special clinics on the weekends three times a year, called the patients and sent letters. We have successfully brought this number down to 182 people needing to be screened. Although we have fewer patients to be screened, more hours are being spent concentrating on trying to get those people in than it took to get the other 6000. The closer we get to the >90% screened, the harder it is to get those last 182 patients in. My recommendation has been to change the screening goal as we are wasting valuable to time and money on people who obviously do not want to help us prevent them getting cervical cancer. Unfortunately, BUMED [The Navy Bureau of Medicine and Surgery] sees it differently.