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

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  • Medema, Steven G.

Abstract

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. Pigou's 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:

Suggested Citation

  • Medema, Steven G., 1996. "Of Pangloss, Pigouvians and Pragmatism: Ronald Coase and Social Cost Analysis," Journal of the History of Economic Thought, Cambridge University Press, vol. 18(1), pages 96-114, April.
    • Handle: RePEc:cup:jhisec:v:18:y:1996:i:01:p:96-114_00
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    Cited by:

    1. Steven G. Medema, 2010. "Adam Smith and the Chicago School," Chapters, in: Ross B. Emmett (ed.), The Elgar Companion to the Chicago School of Economics, chapter 3, Edward Elgar Publishing.
    2. Elodie Bertrand, 2014. "‘The fugitive’: The figure of the judge in Coase's economics," Post-Print hal-03481745, HAL.
    3. Medema, Steven G., 1997. "Comment: The coase theorem, rent seeking, and the forgotten footnote," International Review of Law and Economics, Elsevier, vol. 17(2), pages 177-178, June.
    4. Steven G. Medema, 2010. "Ronald Harry Coase," Chapters, in: Ross B. Emmett (ed.), The Elgar Companion to the Chicago School of Economics, chapter 2, Edward Elgar Publishing.
    5. Steven G. Medema, 2010. "Chicago Law and Economics," Chapters, in: Ross B. Emmett (ed.), The Elgar Companion to the Chicago School of Economics, chapter 11, Edward Elgar Publishing.

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