Final answer:
Efficiency can incur systemic fragility when the benefits of efficiency lead to increased overall demand for resources due to the Jevons paradox, and when there are complex second-order costs resulting from the law of increasing opportunity cost.
Step-by-step explanation:
When discussing why efficiency can sometimes incur systemic fragility, it's essential to look at the nuanced implications of such improvements. Initially, efficiency may seem solely beneficial, characterized by cost savings and better resource usage. However, one critical aspect to consider is that efficiency benefits may lead to complex second-order costs, which is one of the core reasons efficiency can incur systemic fragility.
In the realm of economic theory, there's the notion of the Jevons paradox or rebound effect, where increased demand for more efficient technology leads to a greater overall demand for the underlying resources. This paradox highlights that efficiency improvements can sometimes result in higher, not lower, resource usage in the aggregate, thereby incurring fragility within the system. Moreover, as systems become highly optimized for efficiency, they may lose their ability to handle shocks or variability, hence becoming fragile.
Another aspect of systemic fragility stems from the law of increasing opportunity cost, indicating that as production of a good increases, the cost of producing additional units also increases. In the context of efficiency, this suggests that there may be diminishing returns to improvements in efficiency, and overemphasis on it can lead to resources being allocated ineffectively, potentially increasing the systemic risk.