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property law

Ronald Coase, 1910-2013

by Walter Olson on September 3, 2013

The immensely influential scholar and winner of the 1991 Nobel Prize for Economics was 102 years of age and a productive scholar to the end. An excellent short introduction to Coase’s work is found in the Concise Encyclopedia of Economics, edited by David Henderson.

Coase’s famous, seminal article The Problem of Social Cost, while the most widely cited in the law and economics canon, is also persistently misunderstood and misrepresented by both friends and foes, as Robert Ellickson shows devastatingly in this essay (h/t Jonathan Adler). Many, even most popular attempts to formulate the “Coase Theorem” veer far from what Coase intended and sometimes into the reverse, above all when they idealize the power of negotiation to overcome the problems of externalities in a highly fictional world that assumes away transactions costs.

As Coase himself pointed out: “The world of zero transactions costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave.” Precisely because across a wide range of circumstances the transactions costs of negotiation are too high to permit reallocations of rights between parties, some initial assignments of liability or property rights do impair real output compared with others.

The University of Chicago’s well-meaning notice, I fear, is among those that misstate the Coase Theorem. “Coase believed the incentives of private parties to resolve disputes in their own best interests, even if there needs to be adjudication by courts, should result in an efficient, mutually beneficial solution that is always preferable to government intervention.” (No, that’s not at all what he wrote, even if one succeeds in disentangling the court adjudication from the “government intervention.”) Likewise Bloomberg: “Holding the [polluting] company liable and ordering it to pay money to an affected property holder is less likely to yield an optimal result than having the parties negotiate, he wrote.” (No, that’s not it at all either. At most, his theory implies that the optimal liability rule is fact-contingent and should not invariably be assumed to be the one that makes the smokestack owner pay)

I also have a notion that Coase’s other greatest paper, “The Nature of the Firm” made a huge difference in the real business world in ways that have not been fully reckoned. In that era and on until some time after World War Two, it was widely imagined that the telos of a firm was just to grow and grow without limit, which meant one saw elaborate attempts at vertical integration such as Henry Ford trying to grow rubber trees for tire supply, and antitrust authorities could imagine themselves the only obstacle to the eventual agglomeration of the whole economy into a small number of firms. By the time Coase’s insights had been absorbed, executives had come to see the logic of outsourcing, no one expected the hundred largest firms to account for a higher share of employment or sales or profits each year than last, and antitrust mania went into remission, at least temporarily.

More from Stephen Bainbridge, Lynne Kiesling, Don Boudreaux, David Henderson (a Coase contra Friedman anecdote), Kevin Bryan, David Friedman, Coase interview with Tom Hazlett excerpt via Geoffrey Manne, and Jonathan Adler with much more on what Coase actually thought about the correction of putative externalities. Don’t miss Richard Epstein’s reminiscences, either. [and cross-posted with some additional links at Cato at Liberty]

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December 7 roundup

by Walter Olson on December 7, 2012

  • Georgia: “Twiggs County Landgrabber Loses, Must Pay $100K in Fees” [Lowering the Bar]
  • “Major California Rule Change For Depositions Takes Place In 2013″ [Cal Biz Lit] Discovery cost control explored at IAALS conference [Prawfs]
  • Gift idea! “Lego version of the Eighth Circle of Hell (where false counselors and perjurers suffered)” [John Steele, Legal Ethics Forum; Flavorwire]
  • “Don’t Worry About the Voting Rights Act: If the Supreme Court strikes down part of it, black and Hispanic voters will be just fine.” [Eric Posner and Nicholas Stephanopoulos, Slate, via @andrewmgrossman]
  • “Why did Congress hold hearings this week promoting crackpot [anti-vaccination] views? [Phil Plait, Slate]
  • “Debunking a Progressive Constitutional Myth; or, How Corporations Became People, Too” [John Fabian Witt, Balkinization]
  • “Federal ‘protection’ of American poker players turning into confiscation” [Point of Law]

If the town’s dune project saved their house but also spoiled their view, are the oceanfront owners owed compensation? [Asbury Park Press]

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In Clyde Hill, Wash., a retired Seattle Mariners baseball player has won a ruling from the town that his neighbors must remove two trees that block what would otherwise be an “amazing view of Seattle’s skyline” from his property. “An appraiser hired by John and Kelly Olerud said their $4 million home would be worth $255,000 more if the rare Chinese pine and the Colorado spruce across the street were cut down and replaced with smaller plants. The Chinese pine’s value is estimated at more than $18,000.” [Seattle Times, Ilya Somin] In other tree removal news, an Ontario mother “is fighting to have oak trees removed near her child’s school, fearing that acorns could pose a deadly threat to students with severe allergies.” Local officials say it is unlikely the acorns would prove allergenic to a child unless eaten, which rarely happens given their extreme bitterness. The mother also says acorns “can also be used to bully and torment children.” [Toronto Star via Lenore Skenazy]

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They’re tripping up some unwary homeowners: “1000s of families could be caught by church repair bills as archaic rights revived” [Telegraph, more]

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Drawing on Chapter 10 of Schools for Misrule, I explain at Cato at Liberty — in response to an exchange between Bryan Caplan and Richard Reinsch — why it isn’t necessary to resort to the a priori rights analysis of the late Murray Rothbard to demonstrate that (& Jeremy Blevins).

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Property rights roundup

by Walter Olson on September 18, 2012

  • “Property Rights Panel at the Cato Institute’s Constitution Day” [Ilya Somin] Related: “Sackett v. EPA and the Due Process Deficit in Environmental Law” [Jonathan Adler]
  • Feds’ fishy forfeiture attack on Massachusetts scallopman [Ron Arnold, Examiner]
  • California politicos seek crackdown on lenders’ supposed “retaliation” against municipalities considering seizing mortgages by eminent domain: “You Can’t Use Voluntary Action to Try to Stop Government Coercion” [Coyote; earlier here, here, here] Will Congress step in to shut down the grab? [Kevin Funnell]
  • “The government of Honduras has signed a deal with private investors for the construction of three privately run cities with their own legal and tax systems.” [A Thousand Nations, Todd Zywicki, FedSoc Blog]
  • A Philadelphia business owner decides to clean up and improve an adjacent, neglected city-owned lot, and soon has sad cause for regret [Philly Law Blog]
  • Georgia claimant: “Hi, I own your land although I have no evidence of that” [Lowering the Bar, update]
  • “Blight” condemnation could stymie hopes for historic preservation in Denver [Castle Coalition]

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A discarded Arkansas Lottery ticket turns out to be a $1 million winner, and now three women are fighting over who owns it. [ABC]

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