The O-ring theory of economic development

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Michael Kremer in 1993 put forward an economic theory which still applies today. Wiki article

Link to the Ted Talk

The O-ring production function conceives of the work as a series of interlocking steps, links in a chain. Every one of those links must hold for the mission to succeed. If any of them fails, the mission, or the product or the service, comes crashing down. This precarious situation has a surprisingly positive implication, which is that improvements in the reliability of any one link in the chain increases the value of improving any of the other links. Concretely, if most of the links are brittle and prone to breakage, the fact that your link is not that reliable is not that important. Probably something else will break anyway. But as all the other links become robust and reliable, the importance of your link becomes more essential. In the limit, everything depends upon it. The reason the O-ring was critical to space shuttle Challenger is because everything else worked perfectly.

Link to Transcript

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