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.