The Market for Bees

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Originally posted on October 30, 2009.

Nobel prize winner James Meade argued that the production of honey by beekeepers produced a positive externality for farmers in the form of pollination and thus pollination would be underprovided in a free market.  It turns out, however, that pollination is a $15 billion industry in the United States and beekeepers regularly truck their colonies around the country to sell pollination services to farmers.  Chapter 9, Externalities: When Prices Send the Wrong Signals, tells this story to illustrate the Coase theorem, i.e. how an externality can be internalized by bargaining when transactions costs are low and property rights are well defined.  Instructors wanting more background on the pollination industry can turn to an excellent article from the Federal Reserve Bank of Richmond’s Region Focus.

The video below titled, Bees and Almonds: Productive Business Partners, is also excellent at describing the industry and illustrating some of the economics.  Note around the two minute mark the beekeeper who talks about how beekeepers and farmers are in a two sided relationship.

Video Link : 1553

About the Author
Alex Tabarrok is Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and director of research for The Independent Institute. Tabarrok is co-author with Tyler Cowen of the popular economics blog, Marginal Revolution. His recent research looks at bounty hunters, judicial incentives and elections, crime control, patent reform, methods to increase the supply of human organs for transplant, and the regulation of pharmaceuticals. He is the editor of the books, Entrepreneurial Economics: Bright Ideas from the Dismal Science; The Voluntary City: Choice, Community, and Civil Society; and Changing the Guard: Private Prisons and The Control of Crime. His papers have appeared in the Journal of Law and Economics, Public Choice, Economic Inquiry, Journal of Health Economics, Journal of Theoretical Politics, The American Law and Economics Review, Kyklos and many other journals. His popular articles have appeared in The New York Times, The Wall Street Journal, and many other magazines and newspapers.