Coasean idealization

Research output: Contribution to journalArticlepeer-review

Abstract

Idealizations help us understand the world by simplifying it. When factors make discrete contributions to an outcome, leaving factors out can make it easier to identify the contributions of factors that remain. But typically in economics, factors are not discrete but interact; how can isolating some factor X from some factor Y help us understand a reality in which X’s contribution depends on what Y contributes? I argue that Ronald Coase’s method in ‘The Problem of Social Cost’ illustrates how idealization can aid our understanding of a world in which factor Y (transaction costs) has an effect on factor X (transactions), by making plain precisely that effect, and so making it easier to see features of the actual world that obtain because of that effect. ‘Coasean’ idealization is therefore especially useful for understanding targets in which factors are not discrete but interact, as is so often the case in economics.

Original languageEnglish (US)
Pages (from-to)275-293
Number of pages19
JournalJournal of Economic Methodology
Volume29
Issue number4
DOIs
StatePublished - 2022

Keywords

  • approximation
  • Coase theorem
  • Idealization
  • philosophy of science
  • Ronald Coase
  • the problem of social cost

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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