Tuesday, September 16, 2008

Textbook Case of Market Failure

An interesting feature from the Times on the proliferation of free, on-line textbooks:
SQUINT hard, and textbook publishers can look a lot like drug makers. They both make money from doing obvious good — healing, educating — and they both have customers who may be willing to sacrifice their last pennies to buy what these companies are selling.

It is that fact that can suddenly turn the good guys into bad guys, especially when the prices they charge are compared with generic drugs or ordinary books. A final similarity, in the words of R. Preston McAfee, an economics professor at Cal Tech, is that both textbook publishers and drug makers benefit from the problem of “moral hazards” — that is, the doctor who prescribes medication and the professor who requires a textbook don’t have to bear the cost and thus usually don’t think twice about it.

“The person who pays for the book, the parent or the student, doesn’t choose it,” he said. “There is this sort of creep. It’s always O.K. to add $5.”

In protest of what he says are textbooks’ intolerably high prices — and the dumbing down of their content to appeal to the widest possible market — Professor McAfee has put his introductory economics textbook online free. He says he most likely could have earned a $100,000 advance on the book had he gone the traditional publishing route, and it would have had a list price approaching $200.

“This market is not working very well — except for the shareholders in the textbook publishers,” he said. “We have lots of knowledge, but we are not getting it out.”

He's right. I have moved away from using a textbook for macro principles and I sometimes fantasize about ditching them altogether.

It is not clear what Prof. McAfee himself is maximizing; his behavior seems to be maximizing social rather than personal welfare... He is acting suspiciously like the "social planner" we periodically encounter in economic theory. And not for the first time - see this earlier post on his attempt to fix the academic publishing process.

2 comments:

Esen said...

Ditching the textbook is a good idea but what I have observed is that unless a professor has great notes, and he hands them out, students do like the idea of a book.
When I used a cheaper textbook (one that didn't have colorful pictures or barely any color for that matter) students found it boring and didn't like it either. This is especially more true for introductory classes.

So, ditching the textbook is not that easy (until you have tenure of course).

Bill C said...

Thanks, Esen, that's interesting that they cared about the graphics; I would have thought they would be happy to save money. Of course, it isn't because of the color pictures that textbooks are so expensive..

I got rid of the book for principles after I started using slides, which I made available to them. That seemed to work well at first, but then I added some readings - newspaper articles, chapters from books (e.g. "A Term at the Fed"), and then I started to get complaints about not using a textbook. So, I guess my experience and yours suggest they like pretty books, but they don't like to read words!