I used to think this problem had no solution: Students can't decide what text to buy, since (1) students can't judge texts' quality; and (2) all students in a class must use the same book. And professors can't afford to pay. But let's do more economics.
What are other cases of this problem--A decides but B pays, so prices are high? The most important is health care. The doctor decides what drugs and tests to prescribe, the patient pays for them. The doctor has an incentive to recommend too many tests, to prevent future malpractice charges, since she doesn't pay for them.
What is the solution to this problem in health care?
Insurance? No: insurance is the problem, not the solution. Without insurance, the doctor doesn't care how much treatment costs; with insurance, even the patient doesn't care how much treatment costs.
Patients don't know enough to decide, doctors can't afford to pay. (The textbook case is worse in that patients that share the same doctor needn't share treatments as students of the same professor must share textbooks.) The problem seems intractable. But it's not.
The solution is the Health Maintenance Organization--the patients' doctor works for the patients' insurer: doctor decides, HMO pays. Now the doctor cares about how much treatment costs, because her employer cares.
What is the analogous solution to the textbook problem? The university should buy the textbook, then give it to the student. Universities would have to raise tuition to cover this new cost, but--since texts will be cheaper this way--students should save more on book costs than they lose in increased tuition.
Economics. We start with the assumption of rational self-interest. We examine an odd situation (high textbook prices), and identify the key to its oddity (professors choose the textbook but students have to pay for them). By stating the problem abstractly (A decides but B pays; B has inadequate knowledge to decide himself) we identify another similar situation. By observing the solution in that case, we solve our original problem. All from our armchair.
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