Sunday, April 13, 2008
Efficiency vs Efficacy
  • Efficiency

    Efficiency is lack of waste. In some cases, it can mean "lack of waste of money" or "lack of waste of energy".

    Example: You're selling widgets, and you want to make the most money possible. This is an efficiency goal. Widget production cost = waste + materials + labor.

  • Efficacy

    Efficacy is effectiveness. It can mean "level of coverage" or "level of positive outcome".

    Example: You're making a vaccine, and you want to make sure everyone gets it. Price is no longer particularly important, only the level of coverage. This is an efficacy goal. Number of people dead = ((people in population) / (people covered))^2 (since transmission is reduced, it's square-law-type)

For example, you want these to be efficient:

  • Tax collection
  • Luxury good distribution
  • Financial services

You want these to be efficacious:

  • Medical care
  • Car safety
  • Welfare services
  • Fire and police services
  • Education
Excellent definitions and examples, but what brought this up?

Blogger Justin George said...
Reddit discussion about markets by way of Soros was the main thing. But I'm always having to point out the fact that markets are optimized for efficiency, not efficacy, so they're a bad choice for vital needs.