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The Fable of the Bconomists.
GEORGEJ. STIGLER
EVER since A. C. Pigou wrote his books on "welfare,"1 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
defects.
Surprisingly enough, aside from Pigou's polluting factory and Sidgwick's
lighthouse, convincing examples were hard to come 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 difficultto am
therefore most grateful to the following beekeepersand farmers: Leonard Almquist,
Nat Giacomini, Ancel Goolsbey, L. W. Groves, Rex Haueter, Harold Lange, Lavar
Peterson,Elwood Sires, ClarenceSmith, Ken Smith, John Steg, P. F. Thurber,and Mrs.
GeraldWeddle. All of them providedme with valuableinformation; some of them made
availableto me their accountingrecords and . H. Coaseinspired the investiga-
tion, Yoram Barzel saw that it was conductedthoroughly, and Mrs. Lina Tong rendered
her investigationis part of a proposed researchin the general area of
contracts,financially supported by the National Science Foundation.
1A. C. Pigou, Wealth and Welfare (1912); and The Economicsof Welfare (1920).
2 Pigou had offeredother