Ronald Coase on monopoly as the default explanation for perplexing business practices
11 Dec 2014 Leave a comment
Why does government fail?
31 Aug 2014 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, Ronald Coase Tags: comparative institutional analysis, government failure, market failure, Ronald Coase
Advertising and free speech: the best test of truth is the power of the thought to get itself accepted in the competition of the market
08 Aug 2014 Leave a comment
Coase, Boulding and Marshall on mathematical economics
02 Jul 2014 Leave a comment
in Ronald Coase Tags: Alfred Marshall, Kenneth Boulding, mathematical economics, methodology of economics
Can anyone think of a mathematical economics proposition that was accepted that was not consistent with what Kenneth Boulding called the literary vagueness of classical economics and economic sociology:
Conventions of generality and mathematical elegance may be just as much barriers to the attainment and diffusion of knowledge as may contentment with particularity and literary vagueness…
It may well be that the slovenly and literary borderland between economics and sociology will be the most fruitful building ground during the years to come and that mathematical economics will remain too flawless in its perfection to be very fruitful.
If mathematical economics came up with a result that was not reproducible through economic intuition, did the result become popular or were they ignored? Until this barrier is passed, mathematics will be a shorthand language rather than an engine of enquiry, as Alfred Marshall argued long ago:
[I had] a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules –
(1) Use mathematics as a shorthand language, rather than an engine of inquiry.
(2) Keep to them till you have done.
(3) Translate into English.
(4) Then illustrate by examples that are important in real life.
(5) Burn the mathematics.
(6) If you can’t succeed in (4), burn (3). This last I did often.
Marshall also
saw that excessive reliance on this instrument [mathematics] might lead us astray in pursuit of intellectual toys, imaginary problems not conforming to the conditions of real life.
Information costs are just costs?
25 Jun 2014 Leave a comment
in applied price theory, comparative institutional analysis, Ronald Coase Tags: Armen Alchian, Harold Demsetz, Yoram Barzel
 |
Yoram Barzel and Harold Demsetz pointed out that some economists want to stigmatise information costs. Armen Alchian was in this camp too.
Demsetz asked why the costs of finding, digging up and processing an ore deposit is a legitimate cost, but the costs of finding and interpreting information are illegitimate costs. There is an arbitrary classification of costs going on here according to Demsetz:
…there exists an efficient amount of ignorance in an economic system if the cost of acquiring information is positive.
The amount of ignorance that is efficient increases as does the cost of transacting (viewed as the cost of conveying information). Ignorance not only may be bliss, it also may be efficient.
One cannot claim that resources are wrongly allocated simply because information is not possessed or negotiation is absent; nor can one claim that resources are misplaced because a specific market does not exist.
None of these is free, and the costs of acquiring information and creating and maintaining markets may be so high as to make it efficient to forego some information and some markets.
A decision that something is not worth taking into account is not, because of this, a source of inefficiency. That this something is not taken into account is a reckoning if it follows from a thoughtful anticipation that it is not worth taking into account. An explicit accounting for every ‘something’ would be inefficient indeed in a world in which knowledge is not free
Coase and Demsetz on comparative institutional analysis and the fallacy of comparing actual institutions with unrealistic, idealised alternatives
23 Jun 2014 Leave a comment
in comparative institutional analysis, constitutional political economy, Ronald Coase, Ronald Coase Tags: Harold Demsetz, Roanald Coase
 |
 |
It is my belief that the failure of economists to reach correct conclusions about the treatment of harmful effects cannot be ascribed simply to a few slips in analysis. It stems from basic defects in the current approach to problems of welfare economics
Ronal Coase (1960)
The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing ‘imperfect’ institutional arrangement.
This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements…
the design of institutional arrangements that provide incentives to encourage experimentation (including the development of new products, new knowledge, new reputations, and new ways of organizing activities) without overly insulating these experiments from the ultimate test
of survivalHarold Demsetz (1969)
Recent Comments