25 April 2013

He Said It: Coase

"The question remains: how is it that these great men [viz., J.S. Mill, Henry Sidgwick, A.C. Pigou, and Paul Samuelson] have, in their economic writings, been led to make statements about lighthouses which are misleading as to the facts, and which, to the extent that they imply a policy conclusion, are very likely to be wrong? The explanation is that these references by economists to lighthouses are not the result of their having made a study of lighthouses or having read a detailed study by some other economist. Despite the extensive use of the lighthouse example in the literature, no economist, to my knowledge, has ever made a comprehensive study of lighthouse finance and administration. The lighthouse is simply plucked out of the air to serve as an illustration. The purpose of the lighthouse example is to provide 'corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative' [William S. Gilbert, 'The Mikado']. 

"This seems to me the wrong approach."

--Ronald H. Coase, "The Lighthouse in Economics," Journal of Law and Economics 17, 2 (October 1974), pp. 374-5.

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