My lecture topic at the Austrian Economics Research Conference (3/11/17) was "The Problem of Social Coase." This is a tad obscure for non-economists.
R. H. Coase won the Nobel Prize in economics in 1991. I wrote my book, The Coase Theorem (1992), in response. In my lecture, I went over my reasons for regarding it as an assault on private property. The lecture lasts 17 1/2 minutes.
This was my handout to the audience.
I. THE RECIPROCAL NATURE OF THE PROBLEM: The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm (p. 2).
Whether the cattle-raiser pays the farmer to leave the land uncultivated or himself rents the land by paying the land-owner an amount slightly greater than the farmer would pay (if the farmer was himself renting the land), the final result would be the same and would maximise the value of production. Even when the farmer is induced to plant crops which it would not be profitable to cultivate for sale on the market, this will be a purely short- term phenomenon and may be expected to lead to an agreement under which the planting will cease. The cattle-raiser will remain in that location and the marginal cost of meat production will be the same as before, thus having no long-run effect on the allocation of resources (p. 6).
Of course, if market transactions were costless, all that matters (questions of equity apart) is that the rights of the various parties should be well-defined and the results of legal actions easy to forecast. But as we have seen, the situation is quite different when market transactions are so costly as to make it difficult to change the arrangement of rights established by the law. In such cases, the courts directly influence economic activity. It would therefore seem desirable that the courts should understand the economic consequences of their decisions and should, insofar as this is possible without creating too much uncertainty about the legal position itself, take these consequences into account when making their decisions (p. 19).
If factors of production are thought of as rights, it becomes easier to understand that the right to do something which has a harmful effect (such as the creation of smoke, noise, smells, etc.) is also a factor of production. Just as we may use a piece of land in such a way as to prevent someone else from crossing it, or parking his car, or building his house upon it, so we may use it in such a way as to deny him a view or quiet or unpolluted air. The cost of exercising a right (of using a factor of production) is always the loss which is suffered elsewhere in consequence of the exercise of that right--the inability to cross land, to park a car, to build a house, to enjoy a view, to have peace and quiet or to breathe clean air (p. 44).
R. H. Coase, "The Problem of Social Cost," Journal of Law and Economics (1960).
Bibliography
R. H. Coase, "The Problem of Social Cost," Journal of Law and Economics (1960). www.bit.ly/CoasePSC
Gary North, "Undermining Property Rights: Coase and Becker," Journal of Libertarian Studies, (2002). www.bit.ly/NorthCoaseBecker
Gary North, The Coase Theorem: A Study in Economic Epistemology (Institute for Christian Economics, 1992). www.bit.ly/NorthCoase
Walter Block, "Coase and Demsetz on Private Property Rights," Journal of Libertarian Studies (1977). www.bit.ly/BlockCoase1977
Walter Block, "On Ronald Coase as political economist," Selected Works (Oct. 30, 2015). www.bit.ly/BlockCoase2015
Peter Lewin, "Pollution Externalities: Social Cost and Strict Liability," Cato Journal (1982). www.bit.ly/LewinCoase
Murray N. Rothbard, "Law, Property Rights, and Air Pollution," Cato Journal (1982). www.bit.ly/RothbardCoase
Murray N. Rothbard, "Comment: The Myth of Efficiency," Time, Uncertainty, and Disequilibrium, ed. Mario J. Rizzo (Lexington Books, 1979). www.bit.ly/RothbardEfficiency
Arthur Allen Leff, "Economic Analysis of Law: Some Realism About Nominalism," Virginia Law Review (1974). www.bit.ly/LeffCoase
Richard Thaler, Misbehaving: The Making of Behavioral Economics (Norton, 2015), pp. 261--66. www.bit.ly/ThalerCoase
George Stigler, Memoirs of an Unregulated Economist (University of Chicago Press, [1988] 2002), pp. 75--76. [The 1960 dinner meeting of Coase and the University of Chicago economics department.] www.bit.ly/StiglerCoase
Fred Shapiro and Michelle Pearse, "The Most-Cited Law Review Articles of All Time," Michigan Law Review (2012). www.bit.ly/CoaseCitations2012
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