From: Robin Hanson (hanson@econ.berkeley.edu)
Date: Tue Dec 22 1998 - 11:39:01 MST
Hal Finney wrote:
>Coase's theorem basically says that you can solve externalities by
>introducing property rights. ...
>(These are two sides of the same idea: there is a "right to emit sparks
>that may cause fires", and in one case the railroad starts off owning it,
>and in the other case the farmers start off owning it.)
>Either way, the result is the same, according to Coase. Neglecting
>transaction costs (reasonable if there aren't too many farmers to
>negotiate with), you get a socially optimal balance between spark
>suppression and fire fighting. The distribution of wealth is different
>... (I should mention that my understanding of Coase's theorem comes
>from secondhand sources; I have not read his original work.)
Coase's original paper gave no theorem, and no one else has bothered to
write one down because it's almost a tautology: if you assume
negotiations are efficient (never choosing something when some other
option would have made both parties better off), that the parties
between them control enough relevant parameters, and that deals can
be enforced, then the results of those negotiations are efficient.
It's a useful tautology though, as it makes people think about what
could make negotiations inefficient.
It is far from clear, however, that neglecting transaction costs is
reasonable when there aren't too many farmers to negotiate with. There
are lots of other factors that can lead to inefficient negotiations,
such as asymmetric information.
>Coase's theorem is controversial among libertarians. Some will seize on
>the idea of property rights to solve problems usually left to government.
>... On the other hand, introducing new property rights smacks of coercion
>in itself, to many people (as we have seen here). Property rights in
>clean air and water may be acceptable; property rights to unobstructed
>views (common in some areas) begin to cross the line; and intellectual
>property rights are outside the pale.
I think the key problem is that most "libertarians" don't like simple
consequential analyses of legal & political questions, preferring
axiomatic analyses instead. If they can get someone to accept
a "no coercion" axiom, then given enough time they expect to be able to
convince them of the "right" libertarian views on things. If they
engage in a consequentialist debate, however, talking about what
policies lead to death, poverty, illness, etc., libertarians fear they
may have to admit that in some situations the "wrong" policies may lead
to better consequences. Or they may be forced to invoke an usual
consequence like "reduces liberty".
Ideologues of other political views also fear simple consequential
analyses. They want to invoke axioms like "everyone has a right to
health care" or unusual consequences like "commodification" to avoid
possible unpleasant outcomes of simple consequential analysis.
I embrace simple consequential analysis as a basis for policy
discussions. I accept that it may sometimes favor anti-libertarian
views. I also accept that simple consequential analysis may sometimes
mislead us either because it neglects unusual consequences or because
there really are some axioms we do not want to violate.
I accept these features because simple consequential analysis seems
our best chance for creating broad intellectual consensus on policy
questions. People do form self-serving beliefs about the details of
which particular situations lead to which simple consequences. But
evidence slowly erodes these views, and I see much less prospect for
erosion of disagreements about what axioms to accept or what unusual
consequences to include in analyses.
Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar FAX: 510-643-8614
140 Warren Hall, UC Berkeley, CA 94720-7360 510-643-1884
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