Wednesday, 19 September 2018

The fable of the bees for rent

Back in 2016, I wrote a post about one of the key examples many economists (including myself) use in describing the problems associated with positive externalities, being an example involving bees and apple orchards. I won't repeat all of that post here, but instead take this bit:
In 1973, Stephen Cheung wrote a follow up to the Meade paper in the Journal of Law and Economics (ungated here), where he pointed out that contracting solutions to the bees-and-trees problem were not observed in the real world, because the transaction costs of these agreements are too high (transaction costs in this case are the costs of negotiating a suitable agreement between the apple-farmer and the bee-keeper - if the costs are high, it will be more difficult for the parties to justify the expense of coming to an agreement). Instead, a social norm developed between apple-farmers and bee-keepers in terms of the number of bees per orchard, etc. Of course, a social norm is just an informal contract by another name.
Forget social norms though. An article in The Conversation by Manu Saunders (University of New England) earlier this year suggests that there actually is a thriving contractual market for bees as pollinators:
To optimise yields, most growers rent European honeybee hives during crop flowering season. Honeybees were first introduced to Australia from Europe in the early 1800s. Today, the beekeeping industry includes around 600,000 managed hives and is worth around A$100 million to Australia’s economy. But it’s not just about honey and beeswax products.
Managed crop pollination services have become big business in many parts of the world, including Australia. Although most beekeepers do still keep bee hives to produce honey or wax products, paid pollination services are becoming increasingly important to the industry...
Costs per hive vary depending on the crop, covering costs to the beekeeper such as how far they have to travel, the time of year (early season pollination can be more stressful for honey bees and require more feeding costs for beekeepers to maintain hive health), and the risks (e.g. chemicals) bees might face in the crop. For almond pollination, one hive can cost around $70-100 to rent. 
To recap from my earlier post, beekeepers create a positive externality for orchardists, when their bees distribute pollen incidentally in collecting it for making honey. Orchardists create a positive externality for beekeepers because their trees provide the pollen that the bees use for making honey. Left to its own devices the market produces too little of goods that have positive externalities - there would be too few bees to satisfy the needs of the orchardists, and too few trees to satisfy the needs of the beekeepers. As we discuss in my ECONS102 class, one way of solving this problem is for the two parties to negotiate a contract, specifying the number of bees, the number of trees, and some payment (in this case, from the orchardists to the beekeepers). And it appears to be working, almost exactly as described in class.

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