Ed Lotterman: Beekeeping highlights principle of 'positive externalities'

June 14, 2013 

There is a lot of economics in an issue that gets little attention from the public: the colony collapse disorder that is affecting honeybees across most of the country.

At some $250 million, U.S. commercial honey production is an important industry, but still less than 1 percent of total farm production now nearing $400 billion. So, one might conclude, naively, if all the bees died off, it would not greatly harm our economy. But that would be wrong because bees, both commercial and wild, produce economic value for society far beyond the value of direct sales of their products.

And therein lies the economics lessons.

Commercial beekeeping is a classic example of a production activity that has "positive externalities" or "spillover economic benefits." In this case, in a free market with no government action, less honey is being produced than is really best for society. This is because honey producers only capture part of the bees' overall benefit to society. Therefore, rational, profit-maximizing beekeepers keep fewer bees than there should be for the economy to be most efficient.

The honey industry that generates great value that producers are unable to capture stands in contrast to much more numerous industries that create external costs - pollution for example - that they don't have to bear themselves, but that are imposed on others. In these cases, the same economic analysis shows that more of the product will be produced than is optimal for society.

Arthur Pigou, who first analyzed such external costs, argued that the way to restore economic efficiency was to tax external costs. The corollary is that external benefits should be subsidized for an economy to operate most efficiently.

The specific benefit from bees is the pollination of numerous commercial crops, especially fruits, nuts, vegetables and valuable noncommercial plants. While other insects and some birds also help transfer pollen, food will become less plentiful, less varied and more expensive were we to lose significant numbers of domesticated and wild bee populations.

So why are colonies collapsing? Despite first having been reported in 2006, there still is some controversy. Many blame pesticides, especially a class of insecticides called neonicotinoids. These were developed 20 years ago - as a less dangerous substitute for other chemicals. Some also are blaming mites and sundry pathogens. And some blame global warming and genetically modified crops.

Many scientists think that colonies are succumbing to the combined toll of several stressors rather than a single one. Earlier this year, the U.S. Department of Agriculture issued a voluminous and carefully hedged report essentially saying there is not yet solid proof of any explanation.

Now let's bring in the economics. First, the economic importance of "external effects," both good and bad, usually is greater when population densities are higher. As eighth-graders 50 years ago, boys in my school had to take out the trash to the burning barrel at the end of the day. In a town of 350 and a country of 170 million, this did not cause nearly as much harm as it would today in cities of millions and a national population of 312 million.

Similarly, when there were more tracts of natural vegetation and less insecticide use, there were more natural pollinators; fluctuations in domesticated bee populations were not as important as now. And this is similarly true for groundwater use, urbanization reducing aquifer recharge, and myriad other resource and environmental issues.

Second, "information problems" are ubiquitous. Colony collapse disorder probably results, in part, from environmental damage caused by humans. But it isn't easy to pinpoint the exact causes. We have regulated pesticides for environmental safety for decades, but we still have environmental damage. And self-interest drives people to fight any adverse conclusion.

Farmers deny their crop practices pollute the Mississippi River and manufacturers of neonicotinoids strongly oppose any suggestion that their products are killing off bees. These companies have political power and reports such as those by the USDA have to be written cautiously to avoid political repercussions.

Thirdly, while existing regulation has many faults, it is hard to imagine how a libertarian approach that minimized government and maximized individual autonomy could function without causing enormous harm through uncontrolled externalities. What would happen if we didn't regulate pesticides at all?

Bees are an interesting case in that the external benefits they provide probably are much greater than the ones bringing monetary rewards to their owners. It is rare that external benefits outweigh internal ones in this way.

Yet the shortfall from the economically optimal number of bees probably was not great until now. So ignoring the whole question was understandable. But further ignoring it is a mistake, and as populations continue to grow, and we adopt increasingly complex technologies that we don't completely understand, we are going to experience more situations like this.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.

Idaho Statesman is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service