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In Economics, the Coase Theorem[1] predicts close to this outcome, although it speaks to efficient outcomes and not necessarily harm reducing outcomes. When str
by nickles 11y ago
In Economics, the Coase Theorem[1] predicts close to this outcome, although it speaks to efficient outcomes and not necessarily harm reducing outcomes. When strong property rights exist (and it is feasible for all parties to negotiate), then parties may reach an efficient allocation of resources regardless of how the resources were initially allocated.
To use a typical example, imagine a train track runs through a farmer's land and sparks from the train sets the farmer's wheat on fire, causing monetary harm. If the train company owns the tracks, then the farmer should be willing to pay to put spark guards along the tracks to protect his crop. Alternatively, if the farmer owns the tracks, the train company should be willing to pay for the damage to the crop to ensure that it can continue to operate.
In practice, there may be costs associated with negotiations (e.g. lawyers), it may be infeasible to negotiate between all parties (e.g. if there are many farmers affected), or property rights are not sufficiently strong for one party to bar another from producing negative externalities, all of which can lead to failures of the theorem.
[1] https://en.wikipedia.org/wiki/Coase_theorem https://en.wikipedia.org/wiki/Coase_theorem
- anentropic 11y agoso... the farmer gets screwed?
- nickles 11y agoThe farmer may achieve a more favorable outcome if assigned the property rights, but the Coase Theorem aims to address the notion of efficiency. In an efficient market, no party can be made better off without another being made worse off.
- jschwartzi 11y agoSo is your example meant to illustrate the need for us to filter our drinking water and air if we live on the same planet as a DuPont plant?
- nickles 11y ago>>Free markets when supported by strong property rights can have strong protections to prevent harm or pollution. >Can someone explain how this is supposed to work? I don't mean to sound rude/biased but this sounds like one of those cases where the theory is sound but when it meets with reality we get unpredictable(and sometimes disastrous) results. The example is meant to illustrate the mechanism being asked about by the parent (quoted). Nothing was said about filtering air and water in the example.
- jschwartzi 11y agoBut it's implicit that if the train throws sparks(DuPont plant pollutes the air and water on the entire planet) that the most equitable thing for me to do as the farmer would be to build spark guards(filter my air and water no matter where I live). That way I can prevent my fields from catching fire(increased risk factors from Teflon surfactants).
- mikeash 11y agoThe sparking train analogy fails because it supposes a single obvious entity causing a large amount of damage to a single person. To modify the analogy to fit the real-world situation, it would be more like if there were a million train tracks going all over the place, and the sparks from each train falls on millions of wheat fields, such that everyone lives in a diffuse cloud of sparks, and no single fire can be blamed on any individual train, and the harm from any single train is relatively small, even though the collective effect is extremely damaging. The Coase Theorem assumes that transaction costs are negligible. In a many-to-many situation like real-world pollution, transaction costs necessarily become prohibitively large, because you basically have a quadratic explosion of connections between polluters and victims (many of whom are also polluters!).
- nickles 11y agoJust wanted to point out that you restated what was said in the parent. >In practice, there may be costs associated with negotiations (e.g. lawyers), it may be infeasible to negotiate between all parties (e.g. if there are many farmers affected), or property rights are not sufficiently strong for one party to bar another from producing negative externalities, all of which can lead to failures of the theorem.