On Sun, 29 Dec 2002, Matthew X wrote:
> From 1997 Reason Interview...
> LOOKING FOR RESULTS
> Nobel laureate Ronald Coase on rights, resources, and regulation
> Interviewed by Thomas W. Hazlett
> Again, in 1960, Coase rearranged the study of economics with his essay "The
> Problem of Social Cost." It analyzed what happens when economic actions
> affect third parties--say, for instance, when a railroad dumps pollution on
> a farmer's crops. Before Coase, economic analysis maintained that
> decentralized decision making--the market--in such cases would predictably
> fail to achieve an optimal solution, because self-interested actors (say,
> the railroad owners) would fail to take into account the harm imposed on
> others.
There are -many- other reasons that -any- market (central or free) will be
inefficient.
> That idea had widespread implications for the economy and provided
> intellectual justification for a wide range of government interventions.
> Coase, whose 1959 article on the Federal Communications Commission had led
> him to realize how property rights could be used to manage the airwaves,
> saw something different: The problem actually lay in an improper definition
> of legal rights. He noted that once property was well-defined and easily
> tradable, the efficient solution would follow. Ironically, the optimal
> social outcome would obtain no matter who owned the property.
And what might that 'optimal social outcome' be?
> For instance, even if the railroad possessed the right to pollute, the
> farmer could pay it not to.
How is a threat leading to an 'efficient market'? It increases the cost of
doing business to a 'innocent' third party. How is that efficient?
> Indeed, the farmer (really the farmer's customers) would pay whenever the
> benefit from mitigating pollution exceeded the cost created by pollution.
How can the farmer have customers if the crops don't grow because of the
pollution? Or the farmer can't plant because they're busy with cancer? Or
they're spending twice as much time clearing the land as needed had it not
been polluted (eg solid waste)?
> Hence, whenever someone clearly possessed the right to pollute:
How can somebody have a right to damage somebody elses property? Doesn't
this violate the very definition of 'property rights' that we are using to
create this strawman?
> Voil�! Social efficiency!
How about a definition of 'social efficiency'? Perhaps 'Maximizing profits
while distributing short and long term costs outside the firm providing
the service/product?'
> Reason: Could you state the Coase Theorem? How do you explain it to people?
> Ronald Coase: It deals with questions of liability. Whether someone is
> liable or not liable for damages that he creates, in a regime of zero
> transaction costs, the result would be the same.
And prey tell where in the real world is there a 'zero transaction cost'?
How does the process of polluting a farmers field result in such a
situation? If there were zero transaction cost then why pollute?
> Now, you can expand that to say that it doesn't matter who owns what; in a
> private enterprise system, the same results would occur.
If you have to think about this one for more than 1 second...
Clearly business strategies have different pay-offs, or else all business
would either be profitable, or all would fail (ie same result).
> Take the case of a newly discovered cave. I say, whether the law says it's
> owned by the person where the mouth of the cave is or whether it belongs to
> the man who discovers it or whether it belongs to the man under whose land
> it is, it'll be used for growing mushrooms, storing bank records, or as a
> gas reservoir according to which of these uses produces the most value.
Ah, but -not- the most value to the market, but the most value to the
-user- as -percieved- by the user. Compare land use by a raging capitalist
polluter and the same land used by a ecological group (eg Nature
Conservancy).
> The law of property determines who owns something, but the market
> determines how it will be used.
Then there is no 'property right' and the concept of 'ownership' is a
sham.
> All it says is that the people will use resources in the way that
> produces the most value, that's all.
Which is a specious and -incomplete- statement. There are a variety of
-value- judgements and they are -not- all equivalent or reducable.
> and others took part. I remember at one stage, Harberger saying, "Well, if
> you can't say that the marginal cost schedule changes when there's a change
> in liability, he can run right through."
But Coase can't say this. In fact it costs -the market less- if the
original polluter pays the costs of taking care of the problem initially
out of their own profits (a measure of their business process efficiency
if there ever was one) as compared to spreading that cost out over third
parties who have no decisions in the matter.
The logical falicy with this approach is that if the first polluter is
spreading his waste management costs around, then -all- market
participants are spreading their waste management costs around. While this
may be true -at any one time- it is -not- a requirement for a market or
that it be true -at all times-. The question of -time- is what Coase fails
to consider.
> of course that was right. I said, "What is the cost schedule if a person is
> liable, and what is the cost schedule if he isn't liable for damage?" It's
> the same. The opportunity cost doesn't shift.
It isn't a question of who is liable, it is a question of consequences of
the act and the pursuent costs of dealing with those consequences. This is
a strawman.
> Reason: The place the Coase Theorem comes into play most often is when
> talking about pollution. The pollution problem has been seen in a very
> different light because of the Coase Theorem.
> Coase: It should be seen in a different light, but I don't see why you
> needed the Coase Theorem to do it. The pollution problem is always seen as
> someone who was doing something bad that has to be stopped. To me,
> pollution is doing something bad and good. People don't pollute because
> they like polluting. They do it because it's a cheaper way of producing
> something else. The cheaper way of producing something else is the good;
_ONLY_ if they are paying the full costs of their action. To -force-
somebody else to take an active role in your business decisions -without
input- is not in any way good or supported on a 'free market' (how can the
3rd party be free to decide if they have no say?).
Coase is an idiot and a perfect example of the self-serving Capitalist
(with a big C). His view is "If I make a profit by it then it must be good
irrespective of the costs to others."
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