Posts Tagged ‘Coase’

The Coase Theorem, which tells us that the social optimum may be reached by exchange no matter how property rights are assigned if transaction costs are zero (and not if transaction costs are high enough), has relevance to the problem of zoning.

In much of the U.S., zoning is excessively strict, pricing moderate-income households into bad dwellings or out of the local market altogether. Yet zoning has defenders in the logic of externalities. More development makes people worse off in some ways: more traffic, etc. (Contrary to popular belief, zoning does not prevent a factory from opening up next door to you and polluting your airspace. The common law of nuisance torts prevents that. Zoning instead centrally plans the residential and commercial uses of particular pieces of land throughout a jurisdiction. Developers can appeal a prohibited use to a “board of zoning adjustment.” But such boards often deny requests.)

One simple reform to local zoning laws in the spirit of Coase would be (more…)

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Light pollution which brightens the beautiful dark sky with an ugly muted glow is one of the most underrated negative externalities around.  I talked a little bit about this earlier.  Unfortunately, it is a really difficult problem to solve. 

On the one hand, Coasian bargaining can’t solve the problem given the huge transaction costs of dealing with the millions of people who cause the natural dark sky to disappear (not to mention that a property right in the skies relevant to this issue can’t really be defined or allocated easily unless you gave someone a near monopoly grant). 

On the other hand, even government solutions would be resisted by the “cult of light” that has formed around the notion that we need artificial lighting outdoors in order to be safe and secure (or to properly advertise business activity).  I can’t imagine a tax on improperly shielded outdoor lights large enough to change behavior and decrease light pollution would be very popular with the electorate.  And light fixture and bulb companies would almost certainly use their vast lobbying power to help kill such a tax even if it had an electoral chance.  That leaves regulation – which might suffer from the same political barriers – and education.

Of course, someone might argue that the harm done is so small in the aggregate that it isn’t even worth a political decision costly to the preferences of many more people.  Maybe so, even though I generally reject utilitarian defenses of any particular act or policy. 

So I think we are stuck for the immediate future with the ugly sky we’ve created through the millions of innocent and often well-intentioned decisions of market participants that harm others without compensation.   Part II of this series will try to help educate people about light pollution and how we can reduce it without great harm to other ends.

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Nobel laureate in economics Ronald Coase in “The Problem of Social Cost“:

Actually very little analysis is required to show that an ideal world is better than a state of laissez faire, unless the definitions of a state of laissez faire and an ideal world happen to be the same. But the whole discussion is largely irrelevant for questions of economic policy since whatever we may have in mind as our ideal world, it is clear that we have not yet discovered how to get to it from where we are. A better approach would seem to be to start our analysis with a situation approximating that which actually exists, to examine the effects of a proposed policy change, and to attempt to decide whether the new situation would be, in total, better or worse than the original one. In this way, conclusions for policy would have some relevance to the actual situation.

Remember, utopia is Greek for “no place.”  (more…)

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