Chapter 5: Revisiting Coase on anticipations and the cobweb model
Ronald Coase wrote four articles on the cobweb model, or more specifically on the so-called pig cycle. The focus was on practical policy: the claim by the UK Reorganisation Commission for Pigs and Pig Products, in their 1932 Report, that government intervention was needed to stabilize prices in the pig industry. However, these papers, co-authored with Ronald Fowler and published in Economica between 1935 and 1940 (Coase and Fowler 1935a, 1935b, 1937, 1940), also grappled with a question of lasting importance in economics: the role of anticipations about the future, and more specifically of expectations of future prices. In this chapter we describe and assess the arguments presented by Coase and Fowler, and locate them within the subsequent development of the theory of expectation formation. Their papers are sometimes cited as being at the origin of Muth’s 1961 article on rational expectations. This is speculative, since Muth refers to the papers only briefly at the end of his article; and we are also doubtful that Coase would recognize the rational expectations hypothesis as capturing his own view.
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