Of Honey Bees and Apple Orchards
Economists tell great stories. One of the best is a whimsical tale from economist James Meade (1952) about honey bees and apple orchards.
It goes like this: Imagine a beekeeper who lives next to an apple orchard. In the course of making honey, his bees “accidentally” provide a benefit — pollination — to the orchard owner next to him. That’s what economists call a “positive externality” — a benefit that spills over to somebody else.
Now, since the beekeeper decides how much honey to make based on the costs and benefits to him, he’ll make “too little” honey, since he’s missing out on some benefits but paying the full cost. That means we get an inefficient social outcome — what economists call “market failure”.
The solution? Have the state subsidize beekeepers.
Right?
Wrong. As plausible as it sounds, this “fable of the bees” was turned on its head in a famous 1973 article by economist Steven Cheung.
Cheung — then a professor at the University of Washington — studied actual apple orchards and beekeepers in Washington State. What he found were well-developed markets where beekeepers and apple growers regularly contracted for each other’s services, “internalizing” the externalities Meade had simply assumed would occur. That meant there was no market failure after all. And suddenly, economists had one less whimsical story to tell students.
It’s a great story, mainly because it reminds us to be skeptical of what economist Ronald Coase called “blackboard economics” — abstract thought experiments that suggest market failure without any reference to or understanding of the particular institutional details of the market in question.
Unfortunately, Cheung’s story has been largely ignored by policymakers. Believe it or not, the federal government has run a “U.S. Honey Program” aimed at subsidizing honey production in the U.S. for more than five decades.
The current issue of the Journal of Law & Economics has a great paper looking at the costs of the ridiculous U.S. Honey Program, and demonstrates its sheer wackyness in light of Cheung’s famous paper. Go check it out.
For more, see this PDF paper from the same authors here, on honeybee pollination markets and externalities.
Posted by Andrew on Wednesday March 17, 2004 | Feedback?
