16 J.L. & Econ. 11 (1973)
The Fable of the Bees: An Economic Investigation

handle is hein.journals/jlecono16 and id is 15 raw text is: THE FABLE OF THE BEES: AN ECONOMIC
University of Washington
Economists possess their full share of the common ability to invent and
commit errors .... Perhaps their most common error is to believe other
E   VER since A. C. Pigou wrote his books on welfare,' a divergence between
private and social costs has provided the main argument for instituting
government action to correct allegedly inefficient market activities. The
analysis in such cases has been designed less to aid our understanding of how
the economic system operates than to find flaws in it to justify policy recom-
mendations. Both to illustrate the argument and to demonstrate the nature of
the actual situation, the quest has been for real-world examples of such
Surprisingly enough, aside from Pigou's polluting factory and Sidgwick's
lighthouse, convincing examples were hard to come by.2 It was not until 1952,
more than thirty years after Pigou's initial analysis, that J. E. Meade pro-
posed further examples and revitalized the argument for corrective govern-
* Facts, like jade, are not only costly to obtain but also difficult to authenticate. I am
therefore most grateful to the following beekeepers and farmers: Leonard Almquist,
Nat Giacomini, Ancel Goolsbey, L. W. Groves, Rex Haueter, Harold Lange, Lavar
Peterson, Elwood Sires, Clarence Smith, Ken Smith, John Steg, P. F. Thurber, and Mrs.
Gerald Weddle. All of them provided me with valuable information; some of them made
available to me their accounting records and contracts. R. H. Coase inspired the investiga-
tion, Yoram Barzel saw that it was conducted thoroughly, and Mrs. Lina Tong rendered
her assistance. The investigation is part of a proposed research in the general area of
contracts, financially supported by the National Science Foundation.
1 A. C. Pigou, Wealth and Welfare (1912); and The Economics of Welfare (1920).
2 Pigou had offered other examples. The example of two roads was deleted from later
editions of The Economics of Welfare, presumably in an attempt to avoid the criticism
by F. H. Knight in Some Fallacies in the Interpretation of Social Cost, 38 Q. J. Econ. 582
(1924). The railroad example has not enjoyed popularity. Most of Pigou's examples, how-
ever, were drawn from land tenure arrangements in agriculture, but an exhaustive check
of his source references has revealed no hard evidence at all to support his claim of in-
efficient tenure arrangements.

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