Against ‘Blackboard Economics’

This is from Vox EU:

Finding his own way: Ronald Coase (1910-2013), by Steven Medema, Vox EU: Ronald Coase’s contributions to economics were much broader than most economists recognize. His work was characterized by a rejection of ‘blackboard economics’ in favor of detailed case studies and a comparative analysis of real-world institutions. This column argues that the ‘Coase theorem’ as commonly understood is in fact antithetical to Coase’s approach to economics.

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Against ‘blackboard economics’

Coase’s criticisms of the theory of economic policy were part of a larger critique of what he often referred to as ‘blackboard economics’ – an economics where curves are shifted and equations are manipulated, with little attention to the correspondence between the theory and the real world, or to the institutions that might bear on the analysis. A similar set of concerns led to his skepticism about the application of economic analysis beyond its traditional boundaries. Contrary to popular misperception, Coase had precious little interest in the economic analysis of law. Instead, Coase’s ‘law and economics’ was concerned with how law affected the functioning of the economic system.

It is ironic, then, that the idea most closely associated with Coase, the ‘Coase theorem’, is in many respects the height of ‘blackboard economics’ and a cornerstone of the economic analysis of law. Being misunderstood was something of a hallmark of Coase’s career, as he pointed out on any number of occasions. We should all be so fortunate.