Alternatives in Economic Policy

March 11, 2018

 

The dominant paradigm in economic thinking leads to a lack of awareness of the history of economic thought. In fact, ideas in the general presentation of economic textbooks appear as if they were coherent with a world of costless interaction between uniform utility maximising agents. It is generally claimed that goods can be private in their character – easy to exclude others from, and rivalrous as far their use by one diminishes the quantity left for another – or be public if none of these characteristics can be found in the good. This is in turn translated into economic policy in such a way that private goods are legally governed as private property and exposed to market-led transactions, while public goods should be publicly owned, taken away from the market and generally accessible for use. In contrast to this paradigm, legal and institutional approaches have been founded upon history of economic policy. This historical stance can be traced back to the socialist calculus debate in the first decades of the 20th century, where allocation of resources was discussed by comparing market and command as models of governance of capitalist and socialist economies respectively. Issues concerning information, knowledge, and forms of social organisation were discussed in terms of how to achieve more efficient outcomes without reduction of rationale to the character of goods[MCdB1] . Ronald Coase built upon these insights, showing that the exclusion of certain resources and parts of the production process from the market was present in capitalist economies in the form of firms, which have emerged as a result  of the accumulation of transaction costs if a commodity is produced only using input bought on the market through a chain of short-term contracts. Guido Calabresi went further in complicating the issue of availability of goods on markets by focusing on merit goods. These goods involve substantial dis(utility) for third parties that do not engage in a market transaction themselves. One example is the market for organs that many cultures contest with reference that life should not be sold or that access to life should not depend on the unequal financial capacities of different individuals. In these cases, as Calabresi argues, arrangements that are a hybrid between market and command are often introduced. Finally, Elinor Ostrom argued that beyond public and private goods, common pool resources should also be distinguished. Examples of community governed fisheries and forestries amongst others show arrangements over resources that are rivalrous, but where it is hard to exclude others from their use, can be successfully governed by limited communities of participants that design, supervise, and enforce specific rules. In this way legal and institutionalist scholarship opens up new possibilities and avenues for innovative research in light of the challenges that we, as young scholars, currently face.

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