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COASIAN_REDISTRIBUTION

                                             September 15, 2013


The usual Cosian argument is that according
to Coase's Theorem in some sense it doesn't
matter who has a resource at the outset,
given a fluid market, the resource ends
up in the hands of whoever needs it... at
least as far as economic efficiency is
concerned.

There are right wing/free market types that
really like Coase's Theorem: in their hands
it becomes a weapon against government
intervention-- just let the market rip (and
somehow magically reduce transactions costs
to zero) and all will be well.

Timothy B. Lee, over at the wapo            [ref]
wonkblog had some interesting
things to say about this recently
(September 4, 2013):

   "Ironically, Coase came to dislike
   this 'theorem' because it was
   co-opted by ideologues to justify
   conclusions that were roughly the
   opposite of those Coase himself
   intended."

   "Of course, that 'no transaction cost'
   assumption is ridiculous. ...  And that
   was the point of 'The Problem of Social
   Cost,' the essay that introduced the
   argument that was later dubbed the
   Coase Theorem."

So that's one point: in any real world
circumstance, the transaction costs are
definitely non-zero, and either a public
or private solution might win, depending
on circumstances.

I would raise an additional point:

We care about other things in addition to
"economic efficiency", so that even if you've
found a way of optimizing it, there may still
be other questions.                                   csmith932 made a
                                                      similar comment:
Most of us would not be willing to listen to          efficiency and "fairness"
an efficiency argument in favor of slavery.           don't always go together.



It's an odd quirk of free market enthusiasts
that they tend to assume that economic
efficiency is everything, but that's never         Actually I see I
the case if you have any "externalities" at        misunderstood Coase's
all, and that's pretty much always.                argument in his 1960
                                                   paper: his point is
   It occurs to me that it                         that externalities do get
   might be possible to use a                      captured by the pricing
   Coasian-style argument for a                    system, albeit only if
   progressive redistribution                      transaction costs are zero.
   of income:

One reason the Right seems to like Coase's Theorem,
is because it implies you can ignore past theft in            START_THE_CLOCK
the name of present-day efficiency.

   Hey, so what if they Mayor sold off some
   public lands to his friends?  As long as
   it's traded freely after that, the lands
   will get used "more efficiently".

But doesn't this also work to justify a continuous
program of predictable "thefts", i.e. taxation?

The wealth will end up flowing where it
should be via the magic of the market, where           Taxation undercuts
it begins isn't supposed to matter so much:            incentives? But the
                                                       redistributed income
     So why not shuffle it around on                   creates incentives of
     humanitarian grounds first?                       it's own. Those
                                                       incentives aren't as
                                                       good?  Can you prove
                                                       that, or is it just
                                                       an article of faith?





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