Michael Perelman wrote:
> Peter Dorman wrote:
>
> > I've gotten flamed in the past for defending the value of Coase's article on
>external
> > costs, but I still believe it, for two reasons. First, it clarified the
>definition of
> > an externality: a missing market.
>
> Peter, I considere you to be a very careful thinker. Why should can do externality
>be a
> missing market? Doesn't the suggest that we need to think about the world in terms
>of
> markets or that markets are some help a natural phenomena? To me it seems simpler
>to think
> in a pre-Coasean fashion that markets create enormous damage -- period.
In a sense, this is exactly my point. An externality is a market phenomenon, and it
applies
within that context. It doesn't make sense to speak of an externality in a non-market
situation. But pollution, for instance, can certainly occur and be a problem with or
without
markets. (Example: I would not use the concept of externalities to explain the
failure of the
USSR to cope with its environmental problems.) And once we are within a market
context, it is
important to distinguish between problems due to market organization (like
externalities) and
problems due to other factors (like interaction effects/nonconvexities, as I've argued
elsewhere). Finally, I still think it is useful to be very precise about exactly how
and why
markets have the effects they have. I don't think we are going to leap into a
marketless world
any time soon, and so we have to figure out how to cope with the downsides of markets.
>
>
> > (Why does it matter, other than
> > for the distribution of income, whether the mugger has the right to mug or the
>muggee
> > has the right to not be mugged, if they can bargain over whether there will be a
> > mugging? If there is only one night and one mugging opportunity, Coase is right.)
>
> Peter, why is he right? Let's turn to another example rather than mugging --
>environmental
> racism. Surely it makes a difference whether I have to pay the polluter not to
>pollute or
> whether he has to pay me to accept the pollution. Or am I misunderstanding you?
>
Whenever people disagree with me it's because they don't understand...
All I'm saying is that more is at stake besides income distribution. Coase said:
whether you
pay the polluter or the polluter pays you, either way there will be the same amount of
pollution, and it will be efficient. Then Posner said: since the law should be
neutral with
respect to income distribution, the allocation of rights should be determined by the
degree to
which they create efficient markets through which erstwhile externalities can be
negotiated.
(The goal is to achieve efficient pollution along with efficient everything else --
"wealth
creation".) I'm saying: wrong -- the negotiated agreement based on the polluter
having the
right to pollute will be different from the agreement based on my right not be
polluted. They
can't both be efficient, can they?
>
>
> Michael Perelman
> Economics Department
> California State University
> [EMAIL PROTECTED]
> Chico, CA 95929
> 530-898-5321
> fax 530-898-5901
Peter
