| I think it might be useful to pop up some of the basics of social and philosophical thinking -- partly for my own purposes and partly because it makes things a lot easier to debate when you have some common ground to work from.
The first one I'm going to try out is the notion of an ideal type. An ideal type is an analtical tool from history and sociology. I learnt it from Weber's works on social structures (my first training was as an organisational theorist, and this is one of the most important historical works). The first thing to point out is that the 'ideal' part of the term does not in any moral or instrumental value to the type being described. It is ideal in the sense of being an idealised description of a certain abstract ideas. For example, a 'perfect market' from economic theory can be used as an ideal type. So what is an ideal type?
An ideal type is a set of specific characteristics associated with a particular framework or model. 'Perfect competition' is the 'ideal type' of free market competition. It takes the idea and derives a set of concrete (usually empirical) characteristics that are associated with that idea. So for perfect competition, we see a market consisting of large numbers of buyers and sellers; both buyers and sellers are acting from self-interest; all parties in the market have complete information regarding the transations; and the buyer's offerings are completely substitutable (there may be one or two others I have missed, but these are the main ones). It is important to note that an ideal type is a set of concrete characteristics, not the abstract idea that derived them (although it is inseperable from the idea).
Naturally, one does not expect to actually see an ideal type in reality. Finding a market that is in fact perfectly competitive is very rare. So what is the purpose of an ideal type? As an analytical tool, there are two major purposes.
Firstly, it can be used to connect abstract concepts to empirical reality. While it might not be possible to see 'perfect competition', one can see markets that come close to perfect competition (eg exchange markets) and markets that are a long way from it (eg health services). This gives us a classification framework to assess the appropriateness of the concept associated with the ideal type and it's applicability in describing the empirical situation. As with any calssification framework, they serve to simplify the complexity of reality to a point where we can process and meaningfully analyse it.
Secondly, it can be used to compare two empirical situations -- for example, the two markets I described. The ideal type provides some clear dimensions and criteria where one can look for similarity and difference between situations. One dimenstion of perfect competition is the requirement for complete information regarding the transaction. We can then compare markets in terms of the information availability to buyers and sellers and any costs associated with this information. We can see that in some markets, there is limited information available to anyone -- giving us uncertainty (most risk analysis frameworks are based on this notion of uncertainty). In another class of markets, we have information asymetry -- where the buyers know a lot more than the sellers (eg health care -- the doctor generally knows a lot more than the patient). A third, a very large, school of thought focuses on the costs of gathering information for a transaction -- giving us transaction cost economics.
An ideal type is a methodological tool used to describe the characteristics of a concept. It is used to classify and simplify complex reality and to provide the basis for analytical extention of these ideas. |