Steven G. Medema

The marginal efficiency effects of taxes and subsidies in the presence of externalities: A computational general equilibrium approach

Abstract Using 1983 data, we develop a 19-sector computational general equilibrium model, incorporating producer-producer externalities and producer-consumer externalities. Simulation results indicate that when additional government expenditure is financed by Pigouvian taxes, the marginal cost of public funds is substantially below one. Labor, sales, and output taxes also affect the output of the polluting industries, and thus have indirect Pigouvian effects which tend to reduce the associated marginal costs of public funds. Pigouvian taxes are usually more efficient than Pigouvian subsidies, since the tax revenue can be used to reduce other taxes.

A History of Economic Thought: The LSE Lectures

These lectures, delivered at the London School of Economics between 1979 and 1981 and tape-recorded by Robbinss grandson, display his mastery of the intellectual history of economics and his enthusiasm for the subject. They cover a broad chronological range, beginning with Plato, Aristotle, and Aquinas, focusing extensively on Adam Smith, Thomas Malthus and the classicals, and finishing with a discussion of moderns and marginalists from Marx to Alfred Marshall. Robbins takes a varied and inclusive approach to intellectural history and the lectures are united by his conviction that it is impossible to understand adequately contemporary institutions and social sciences without understanding the ideas behind their development.

Ronald Coase, The British Tradition, and The Future of Economic Method

Although Ronald Coase is popularly associated with the Chicago School, his approach belongs to the late nineteenth and early twentieth century British tradition. In this essay, we address whether the Coasean or traditional British methodology can offer improvements to current methods. Current economic method has contributed to a crisis in economic theory which, we believe is leading to a paradigm shift. We maintain that greater weight given to the earlier method would lead to a stronger economic science. In important cases, modern economics has failed to adequately test its theory and explore its assumptions. The very notion of the need to explore assumptions has been dampened by modern methods emphasis on prediction. The Coasean and British tradition emphasizes understanding, rather than prediction, as the first function of theory. It stresses the use of inductive methodology in the building of theory. That, in turn leads to an emphasis on the understanding of the behavior of individuals and institutions rather than their treatment as black boxes which carry out certain functions. In the British tradition, the foremost purpose of theory is to understand, and understanding requires empirical research and building theory inductively.

Coase, Costs, and Coordination

tion-in particular, markets, firms, and governments-have always occupied a place at the center of economic analysis, albeit with differential degrees of positive and normative emphasis among them at different times and by different schools, relatively little attention has been devoted to the examination of the underpinnings of these mechanisms. This has several implications. First, economic theory offers little in the way of explanation for how these mechanisms function and why they function as they do. Second, there has been, until recently, little offered by way of explanation for the observed pattern of coordination within the economic system and, in particular, why certain activities are coordinated in different ways (e.g., market versus firm, short-term versus long-term contracts, etc.). Third, and reflective of the foregoing, economic theory offers little basis for the normative analysis of and choice among alternative instruments of coordination. For Ronald Coase, issues such as these are at the heart of economic analysis, one of the central functions of which, in his view, is to understand and to make policy recommendations regarding the appropriate institutional structure of production and exchange-the mechanisms through which production and exchange are to be coordinated. In this essay, I will attempt to outline Coases contributions in this regard and evaluate their import for economic analysis. While Coase has by no means

'Marginalizing' Government: From La Scienza Delle Finanze to Wicksell

In spite of the efforts made over the past several decades to bring to the fore the important contributions of the Italian public finance tradition - La Scienza delle finanze - this body of analysis remains relatively unknown outside of Italy. The same cannot be said of the seminal work of Knut Wicksell, whose work in his Finanztheoretische Untersuchungen provided a springboard for modern public choice analysis as developed in the hands of James Buchanan, Gordon Tullock, and others - although even Wicksells work in the area of public finance was all but ignored within the evolving neoclassical literature on this subject until the 1960s. This paper will show how the Italian approach hinged on the developments of the marginal revolution and how the precision thereby engendered raised critical issues regarding the ability of actual governments to provide public goods and services in accordance with the dictates of optimality. It is suggested that the problematic nature of these claims is resolved by Wicksell, who, through a more explicit incorporation of the political process as linked up with individual voter desires, demonstrated the conditions under which the claims made by the disparate element of the Italian tradition would hold true.

Of Pangloss, Pigouvians and Pragmatism: Ronald Coase and Social Cost Analysis

The laissez-faire welfare theory of classical economics was very much concerned with demonstrating the optimality of the competitive market system, or, more generally, the harmony between individual and social interests. Under the influence of J. S. Mill and Henry Sidgwick, however, this view gradually began to erode. Sidgwick (1901), for example, pointed to a number of factors, including what we now call externalities, that can cause individually-optimal behavior to diverge from the social optimum, and suggested that these potentially call for governmental corrective measures. Alfred Marshall carried this discussion a bit further, but it was through A. C. Pigous analysis—particularly in The Economics of Welfare (1932)—that the theory of market failure, and the need for government correction of these failures, reached full flower. His work formed the foundation for “modern†welfare economics. The contrast between the “old†and the “modern†welfare economics was pointed out by James Buchanan:

Ronald Coase on Economic Policy Analysis: Framework and Implications

Ronald Coase is perhaps best known for contributing to legal-economic analysis the body of ideas that has come to be known as the Coase theorem. The Coase theorem has powerful implications for questions of legal-economic policy because it implies that (i) law does not really matter, since parties will exchange rights so as to move them to their highest-valued uses, irrespective of their original assignment, and (ii) Pigouvian remedies (taxes, subsidies, and regulations) are unnecessary for treating externality problems, since externalities will be costlessly internalized through the aforementioned market bargaining process.

The history of economic thought : a reader

1. Pre-Classical Thought. Introductory Notes. Aristotle. St. Thomas Aquinas. Sir William Petty. Thomas Mun. John Locke. Richard Cantillon. Francois Quesnay. Anne Robert. Jacques Turgot. Bernard Mandeville. 2. The Classical School. Introductory Notes. David Hume. Adam Smith. Henry Thornton. Jeremy Bentham. Thomas Malthus. William Godwin. David Ricardo. Jean-Baptiste Say. Thomas Malthus. James Mill. Nassau Senior. J.S. Mill. 3. The Marxian Challenge. Introductory Notes. Karl Marx. 4. The Marginal Revolution. Introductory Notes. William Stanley Jevons. Carl Menger. Leon Walras. Alfred Marshall. Eugen Bohm-Bawerk. F.Y. Edgeworth. 5. The Development of Macroeconomics. Introductory Notes. Knut Wicksell. Irving Fisher. John Maynard Keynes. 6. Institutional Economics. Introductory Notes. Thorstein Veblen. John R. Commons.

Symposium on the Coase Theorem: Legal Fiction: The Place of the Coase Theorem in Law and Economics

Modern law and economics received much of its impetus from Ronald Coases analysis in ‘The Problem of Social Cost,’ and a goodly amount of that comes from the Coase theorem, which states that, absent transaction costs, externalities will be efficiently resolved through bargaining. The fact that the analysis that came to be codified in the Coase theorem was (intentionally) an exercise in pure fiction on Coases part did not deter the erection of a substantial edifice of positive and normative analysis on this foundation, nor, for that matter, has subsequent elaboration of Coases intent done anything to abate the interest in the theorem and its implications.

Discourse and the Institutional Approach to Law and Economics: Factors That Separate the Institutional Approach to Law and Economics From Alternative Approaches

The importance of the rhetoric of economics has recently been realized in the work of such authors as Donald N. McCloskey [McCloskey 1985] and Arjo Klamer [Klamer 1983, 1987]. Economics is seen to advocate a point of view or ideology, as discourse and not necesssarily truth. Recognition of the channeling, obfuscation, selective perception, and fictions involved in economic discourse is necessary for a complete analysis of economic models and their policy prescriptions. This article explores the rhetoric of the interrelations between legal and economic processes as expounded in neoclassical law and economics, critical legal studies, and neo-institutional law and economics. Space limitations preclude anything more than a taste of the rhetoric involved in each approach.