The merger of engineering and economics

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I couldn't fit it in the title, but I think the merger of engineering and economics is going to be important going forward. I feel most economists look down on engineering economics (just thinking of variable/fixed operational costs and investment costs, etc), and most engineers think that economists are naive in the characterization of physical domains (like economic policy analyses of energy systems not fully capturing physical principles).

I think MIT started a multi-disciplinary program tying those two fields.

There is no more relevant field for this than "energy economics". Energy is a physical principles that economists often trivialize... and economics contains ideas that most engineers haven't come across. Yet, most quantitative literature in energy economics shows a stagnating field in terms of new ideas; all papers either do econometrics (statistics applied to economic data), or energy systems models that are surely but slowly merging the two fields.

For example, these three papers: 1, 2, 3. 1 does econometrics, and 2 does energy system modeling, while 3 is a recent paper that merges heat transfer principles with microeconomics.

I think engineers, with their math skills over many economists, can flood this field with content merging both disciplines.
 
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  • #2
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"Science/Thermodynamics and Econ.?" Never the twain shall meet.
 
  • #3
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"Science/Thermodynamics and Econ.?" Never the twain shall meet.
I don't understand the last sentence. Why can't they meet? We live a multidisciplinary universe, where everything is influencing our decisions.
 
  • #4
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This is not new. Before retiring in 2005, my last project was to integrate the real time engineering control of the New York State power grid with the economic energy futures markets and auctions for services. There's a third leg to this stool; law. We had to publish a tariff that says in lawyer language exactly how everything works. The software had to do exactly what the tariff says, and the tariff my say exactly what the software does.

Adding features such as consumer price/consumption elasticity is an incremental change.

Of course professional software must also have vital ergonomics and cyber security properties. It is very much multidisciplinary.

Academic multidisciplinary things I saw in the past were very crude on the physics and engineering aspects. There is a long-standing truism that many people in industry believe. It is easier to teach an engineer how to program, than to teach a programmer how to do engineering. I think that is analogous to economics. Engineering is most difficult, so students need first and foremost a sound engineering education; especially excellent calculus and differential equation skills. Economics and social behavior topics can be added later.
 
  • #5
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There is no more relevant field for this than "energy economics".
Well. There is an anecdotal animal (an illustration) in my country called 'the vet's horse'. That is a horse which has every possible horse disease.

'Energy economics' is kind of a vet's horse. It is so popular topic that littered with crackpots: it is so deeply influenced by ever changing politics//law that hard to find any solid basis: it is such a helpless victim to any 'pure' economics' that barely any engineer dares to touch it.
 
  • #6
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I think we have seen an parallel to that in media discussions of energy, power, etc. Do you ever see them bring in anyone actually in the industry being discussed? I sure haven't.
 
  • #7
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I think we have seen an parallel to that in media discussions of energy, power, etc. Do you ever see them bring in anyone actually in the industry being discussed? I sure haven't.
Ted Koppel wrote a terrible book (in my opinion) about the grid. In it, he interviewed politicians, managers, CEOs, other journalists, survivalists, but not one single engineer.
 
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Well. There is an anecdotal animal (an illustration) in my country called 'the vet's horse'. That is a horse which has every possible horse disease.

'Energy economics' is kind of a vet's horse. It is so popular topic that littered with crackpots: it is so deeply influenced by ever changing politics//law that hard to find any solid basis: it is such a helpless victim to any 'pure' economics' that barely any engineer dares to touch it.
There is this prevailing idea in the energy economics discipline that engineering and engineers are "not useful". That is at least how I have been introduced. See, I'm an engineer by training, but I've picked up energy economics by trade. So my boss once introduced several colleagues and I by saying, "they're engineers, but we'll make something useful out of them."

Engineers have to force themselves into this energy economics world.

And I agree with a previous comment that it's easier to teach engineers economics than it is to teach economists about engineering/math.
 
  • #9
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I see the problem differently. Economics is not a science.
Economic theories appear like floods of belief systems, a bit like fundamental religious terrorism. At any time there are a couple of major rival theories, each denigrating the other, while trying to persuade politicians to divert money in some particular way. No economist's model ever describes more than half of reality, it is all economic polemic and political rhetoric.

Real engineers stay well clear of economic theory. Engineers prepare project costings by doing the accounting needed to select between different possible engineering options.

If the project is ever built, politicians will persuade management to operate it in an inefficient way that scores more votes for the politicians. It will be taxed to make it as inefficient as earlier generation projects, with those taxes going to subsidise operation of older inefficient structures.

Call me cynic or a realist, but I say we would be insane to allow a reliable engineering discipline anywhere near an unscientific and unstable fundamentalist movement.
 
  • #10
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Call me cynic or a realist, but I say we would be insane to allow a reliable engineering discipline anywhere near an unscientific and unstable fundamentalist movement.
Count me in the cynic's corner most of the time, but in this case you go too far.

Consider the case I referred to in #4, real time control of power systems, integrated with economics and law.
  • You have a network with about 10K nodes, 20K branches. Ohm's law, plus a handful of transient equations govern.
  • We have various services to provide; power, energy, 30-10-0 minute notice reserves, VAR generation/absorption, frequency control, black start capability, wheeling other people's power through the grid, and more. Multiple bidders compete in an auction to supply those services. The bids are accepted/rejected each 15 minute period on each of the 10K nodes. That sets the prices at each node & time and determines how much money is paid to who. The auctions operate much like stock markets.
  • The objective is lowest cost, subject to about 250K reliability constraints that must not be violated.
  • Every candidate solution requires a full nonlinear solution for the volts, amps, watts, VARS in the whole network.
  • The whole thing is tightly regulated by the feds, and scrutinized by lawyers.
So here we have an unholy mix of engineering, economics, and law in a real-time application. It is real, and it is what the OP was alluding to. The security of the grid and billions of bucks are at stake, so no sloppiness is allowed.

It is true that there's no university that has an integrated program teaching all that stuff, nor are there many researchers who understand all three domains.
 
  • #11
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Count me in the cynic's corner most of the time, but in this case you go too far.
I have not gone too far, I have simply pointed out that thermodynamics is ignored, often actively denied by economic theories. That is incompatible with engineering. The two cannot mix.

Your example demonstrates that you did the bidding of business and politicians. The model used to trade energy is determined by the politics of the day. “I was only obeying orders”. History is written by the victor. Future historians may not interpret history in the same way.

Do you believe everything is for sale, at an auction price? How can an engineer put a dollar value on human life or freedom? It could be argued that you have prostituted your engineering skills to advantage a paradigm, a current economic belief, that the free market rules over the people.

That is the beauty of economic theory, everything is one sided, forces are not balanced, there is no double entry bookkeeping to force a balanced view. Economic theory can be applied to justify any action, so is ideal for polemic argument.
 
  • #12
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Economics is not a science.
Well, that's indeed goes too far. Economics has very solid scientific roots in mathematics. The problem lies in the next part:

At any time there are a couple of major rival theories, each denigrating the other, while trying to persuade politicians to divert money in some particular way.
I see that differently. The politicians trying to find justification in economics, and so picking theories (regardless of the limits of those theories) according to their actual needs. This means money, and ends in an uncontrollable inflow of crackpots ready to serve any whim.
 
  • #13
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Well, that's indeed goes too far. Economics has very solid scientific roots in mathematics.
Mathematics is a language that can be misapplied.
https://www.investopedia.com/ask/answers/030315/economics-science.asp
"Economics is generally regarded as a social science, although some critics of the field argue that economics falls short of the definition of a science for a number of reasons, including a lack of testable hypotheses, lack of consensus and inherent political overtones. Despite these arguments, economics shares the combination of qualitative and quantitative elements common to all social sciences".
 
  • #14
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Despite these arguments, economics shares the combination of qualitative and quantitative elements common to all social sciences".
Not just 'social' science belongs there: it includes a decent part from biology//evolution, especially the historical or human aspects. All that has 'qualitative and quantitative' elements common with economics (and the so called 'social' sciences).

... so while I definitely do share some of your emotions about the mainstream economics, especially as it appears in common media: it still goes too far to judge its roots into science invalid.
 
  • #15
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Call me cynic or a realist, but I say we would be insane to allow a reliable engineering discipline anywhere near an unscientific and unstable fundamentalist movement.
The reality of our world is that the big decisions are made over money, by businessmen and politicians. As engineers we can throw up our hands and say "oh well, nothing I can do", or we can enter the conversation to the extent possible.

The OP is too strong in calling for a merger, but it is also too strong to say "never the twain shall meet". Oil and water don't mix either, but you often find them in the same frying pan.
 
  • #16
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I couldn't fit it in the title, but I think the merger of engineering and economics is going to be important going forward. I feel most economists look down on engineering economics (just thinking of variable/fixed operational costs and investment costs, etc), and most engineers think that economists are naive in the characterization of physical domains (like economic policy analyses of energy systems not fully capturing physical principles).
In my undergraduate program, the introductory course in nuclear engineering including a simple economic analysis for nuclear power plants. It was basically an introduction to large capital projects, with some simple models on cost of capital, costs for fuel, operations and maintenance (O&M), capacity factor, etc. Life of the plants were 40 years; now some plants have 20 year life extension, and some are looking at an additional 20 years. Some aspects not considered were replacing the steam generators (in PWRs), large components, or delays in construction, which would make the plant (and electricity). The program had us take basic economics (from the economics department) and a dedicated course, Engineering Economics, which dealt with more practical applications of economics, such as interest and return on investment, comparative costs of products or goods, etc.

Apparently, there is a Fundamentals of Engineering program/certification in Engineering Economics.
https://engineering.purdue.edu/~xe/Forms For Website/FE Review/Slides/ProblemsandSolution1/Engineering Economics_Solutions.pdf

MIT certainly has a program.
https://ocw.mit.edu/courses/chemical-engineering/10-490-integrated-chemical-engineering-i-fall-2006/projects/eng_econ_lecture.pdf

Modeling energy systems is rather complex (see anorlunda's posts). The objective is to develop mathematical relationships the capture the complexity of commerce and technology, and to some extent, the arbitrary nature of costs like taxes, fees, etc, or external and somewhat unpredictable forces, e.g., natural events, such as fires, floods, wind (hurricanes/tornadoes), earthquakes, human conflicts, competing new technologies, . . .

Some concepts are rather simple, e.g., determining which alloy, e.g., grades of stainless steel, one selects for a power system based the initial capital cost vs replacement cost (wear and tear). Such a model would include technological aspects such as strength of a material, corrosion resistance, service life, . . . .
 

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