Thursday, October 22, 2015

The Nirvana Approach in Ag Economics - Contributions of E.C. Pasour

Back in April I wrote about an article by Harold Demsetz that juxtaposes two types of economic analysis: the nirvana approach and the comparative institution approach. In his 1969 article entitled "Information and Efficiency: Another Viewpoint" in the Journal of Law and Economics, Demsetz defines these approaches:

The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing "imperfect" institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements. In practice, those who adopt the nirvana viewpoint seek to discover discrepancies between the ideal and the real and if discrepancies are found, they deduce that the real is inefficient. Users of the comparative institutional approach attempt to assess which alternative real institutional arrangement seems best able to cope with the economic problem; practitioners of this approach may use an ideal norm to provide standards from which divergences are assessed for all practical alternatives of interest and select as efficient that alternative which seems most likely to minimize the divergence.
In spite of Demsetz's critique, the nirvana approach is often used in economics to diagnose market failures; that is, failures of markets to live up to an ideal, theoretical norm. This is no less true in agricultural economics than it is in economics, but in both professions there are New Institutional and Public Choice economists who take Demsetz seriously.

Retired NC State ag economist E.C. Pasour Jr. is one of them. In two of his papers (here and here), he draws on Demsetz's insight and applies it to two arguments in favor of government planning: land use policy and hog futures market efficiency. Pasour stops short of giving a full discussion of the institutional alternatives and instead focuses on explaining Demsetz's critique. The interested layman can read through them, both are short.

More papers like Pasour's would serve to improve the already high quality of research in the ag economics profession. Additionally, if we keep Demsetz's critique in mind when doing our own research and question our fellow scholars when we see the nirvana approach in action, we can further improve the quality of research in our field.


  1. Very good post! I am def going to check out the paper on land use policy.

    1. Thanks, Dallas. He has some fantastic papers. Until I looked him up on RePEc, I never knew how much he published in "Public Choice."