ECON 255 - You can say you actually read Coase...

...unlike most of my conservative friends.

 

http://www.econ.ucsb.edu/~tedb/Courses/UCSBpf/readings/coase.pdf

 

 

Comments

[Owen Brannigan]

As most economic papers I found this paper very dense and repetitive, but I also found the passage on the doctor and the confectioner interesting and thought provoking. Problems such as this one occur everyday and I found this example easy to understand. One question I do have is whether the doctor could have gotten a better deal if he had asked the confectioner to pay him for making the noise or pay to have a wall installed instead of taking the case to court. I think that trade-offs such as these are essential in understanding economic shifts and problems of interaction between businesses and people.
The idea of switching the tables in which the confectioner now had control was also interesting and added a twist to this situation I did not previously predict. It played into the idea of a costless environment and I continually thought to myself of the quality of this class as means to explore "it depends" situations. A lot of interactions in economics deal solely with people making trade-offs and allowances for what they want or need. The path to a sustainable environment is to find trade-offs that aid both the environment and the people inhabiting it.

[Katherine Pranka]

I found this article interesting, especially when it addresses who should be held responsible for things like buildings casting shadows and buildings blocking wind from windmills. My personal opinion is that if it a requirement for your business, then you should invest in air rights and other ways to keep your business going. However, it also reminds me of the time when my town was putting a wind farm in, and everyone was very against it, because it "made the cows go crazy." What I considered the only valid argument against the wind mills was a couple who liked to watch the sunset from their porch and whose view would be blocked, so they asked for the windmill to be moved. The farmers who rent the land to the wind power company were all happy, because they had a guaranteed large income every year, added to the fluctuating corn and soybean prices. The idea of blame is an interesting one, and I think that people should be more aware of what potential problems will be for them.

[Ryan Ellis]

What struck me most about this paper was Coase’s last section, in which he accepts the fact that the theories and hypothetical situations he describes are occurring in an ideal world. Especially in his argument for social arrangements, we must assume that the actors involved will act rationally and for the least damaging social cost. Unfortunately, as he affirms, this rarely happens in the real world. Executives of firms responsible for environmental harm are profit-seekers, rather than seekers of well-being or social welfare. This alone will drive what we consider irrational decisions that affect not only the area around, say, a polluting factory, but also global climate change.

Coase also addresses the difficulty in measuring social cost on a macro scale. Without a firm understanding of the marginal costs involved with pollution, especially air pollution, it is very challenging to provide incentives for firms to stop polluting. All of the numbers in his arguments are strictly hypothetical, although some can indeed be implemented into the real world, such as the herder/farmer example. A single cow or crop can be quantified to a dollar amount, but the possible economic loss of pollution and environmental harm cannot be calculated to a quantitative amount. Because of this, a system in which firms pay for social welfare damages becomes a tall order.

Finally, along the same vein of the lack of an “ideal world”, especially in the US, a large number of individuals simply do not believe in the harms brought on by pollution. It is very easy to give examples of nuisances such as smoke and loud noises. It would also be very easy to come to a decision on the best system to omit these nuisances while maintaining economic prosperity, but when the social costs are not immediately seen or heard, the general public will not have any complaints. US citizens generally disagree with the idea that humans are causing the vast majority of climate change, and until that sentiment changes, significant progress on the front of higher social welfare cannot be made.

[Matthew Inglis]

What I liked about this article was that Coase at one point addresses the Pigovian approach and explains the problem with it. On pages 32-34, Coase uses his example of trains and the question of who should be held accountable for fire damages to crops. Interestingly, he brings in the Pigovian take on this, and he agrees with it. This is something that relatively surprised me - I did not expect Coase to be in accord with Pigou.

However, Coase goes after the method in which Pigou conducts his analysis of the situation, stating, "Pigou does not seem to have noticed that his analysis is dealing with an entirely different question" (Coase 34). The discussion that follows this excerpt regards the vagueness of private and social products in the real world. This made it easier to understand the reason for such differing approaches to a problem.

Situations that we occur in life are not as black and white as models make them appear. This seems obvious, but it is important to remember when investigating a scenario and possible actions that should be taken.

Despite all this, I wonder: Are there times when Coase's approach should be scrutinized? He seems to effectively shut down Pigou's method, but surely there are situations where a Pigovian analysis may be more correct/appropriate.

[Ty Mitchell]

While I do agree with some of the above comments that the article is a bit long-winded and repetitive, I do like the nature of not only Coase’s argument, but the entire idea that he is bringing up. In my personal experience, much of the argument for environmental protection comes from an emotional side instead of rational. Both sides never really acknowledge the benefit of the others. This has created an all or nothing/us vs. them mentality, as shown by the massive lobbies in Washington on both sides.
Coase’s argument focuses primarily on finding that ideal amount of pollution. The biggest problem with his point as a whole, which he addresses, is actually valuing each unit of pollution on a macro scale. The goods being produced can be measured in dollar amounts, which makes it easier to determine exactly what the marginal cost would be for the production side. The difficulty arises with the pollution. No good way exists to measure the dollar amount of a unit of pollution, such as a ton of SO2.
Ultimately, Coase doesn’t so much provide a great solution, but more discounts the Pigouvian mindset. He uses Pigou’s train example to prove that while Pigou believed he had found the answer, it was an answer to the wrong question. Unfortunately, the method Coase provides us with is nearly impossible to actually put into practice in the real world, especially when you throw politics into the mix.