In preparing for some upcoming classes on the Coase Theorem, I came across a few interesting tidbits that I’d seen before but I thought would be worth posting.
This, from George Stigler, on Coase’s ability to persuade some skeptical colleagues:
We strongly objected to this heresy. Milton Friedman did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument the vote went from twenty against and one for Coase to twenty-one for Coase. What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.
And the fraction of his total publications that have become true classics is astounding. Just consider that two of his twelve notable papers – “The Nature of the Firm” and “The Problem of Social Cost” – are among the most well-known papers of the 20th century (and they used little or no mathematics – imagine that).
By the way, Coase is apparently still going strong at the ripe old age of 102.
Sad news from Indiana on the passing of Elinor Ostrom who did innovative work in institutional economics. From the Indiana University announcement:
The Royal Swedish Academy of Sciences awarded the 2009 Nobel Prize in Economic Sciences to Ostrom “for her analysis of economic governance, especially the commons.” Through a multidisciplinary approach that combined theory, field studies and laboratory experiments, she showed that ordinary people are capable of creating rules and institutions that allow for the sustainable and equitable management of shared resources. Her work countered the conventional wisdom that only private ownership or top-down regulation could prevent a “tragedy of the commons,” in which users would inevitably destroy the resources that they held in common.
Acemoglu and Robinson on why Haiti remains so desperately poor. I’m not sure I would discount the cultural/David Landes-type arguments quite so quickly, but their institutional story is a compelling one.
One hypothesis about the divergence between Haiti and the Dominican Republic is that a similar situation arose with Haiti and the Dominican Republic. Though the latter shared a history of slavery, dictatorship and US invasion, it did not suffer as much as Haiti. After 1930 Rafael Trujillo, head of the US created national guard, set himself up as dictator. He controlled the army and embarked on a path of extractive economic growth. As the world economy boomed after 1945, divergence set in. The Dominican Republic exported sugarcane and cigars; afterwards they developed a successful export processing zone. After Trujillo was assassinated in 1961, they managed an imperfect transition to more inclusive political institutions, sustaining the economic growth. Haiti was different, without such a strong state or political control of the army, the period after 1930 saw political instability not extractive growth and when François Duvalier (“Papa Doc”) came to power in 1957 he privatized violence using the ton ton macoutes to control the country, not the army. There was no extractive growth in Haiti, just anarchy.
Donald Harreld reviews Sheilagh Ogilvie’s new book here. I haven’t read it yet, but it’s on my list now. Ogilivie tries to explain why guilds arose, why they survived for so long and why they eventually declined. On the second question, she seems to draw on some of the existing political economy/interest group literature (a good review of which is found in Mitchell and Munger’s 1991 paper in the American Journal of Political Science):
According to Harreld’s review:
They persisted so long, according to the book, because of the ”distributional services guilds offered to two powerful groups” (p. 417). They affected theruler’s ability to “extract extra revenues” from the population, and, for merchants, the ability to “extract profit from trade” (p. 417-18). Ogilvie clearly rejects throughout this book the notion that merchant guilds were able to solve commercial problems in a way that benefitted the entire economy. Indeed, merchant guilds, according to Ogilvie, benefitted their own members at the expense of the wider economy.
Ogilvie’s conclusion has profound implications for the study of economic institutions, and that is what makes this an important book — one might even call it a game-changer. For Ogilvie, institutions cannot be adequately explained in terms of efficiency; indeed, the entirety of an institution’s actions as well as all of its economic effects needs to be considered. She admits that taking such an all-encompassing approach will make our analyses more complicated, but the result will be a much better understanding of the ways institutions “behave and develop” (p. 426).