Re: Coase's Theorem and Intellectual Property

Peter C. McCluskey (
Thu, 24 Dec 1998 08:56:02 -0800 (Robin Hanson) writes:
>Hal Finney wrote:
>>Coase's theorem basically says that you can solve externalities by
>>introducing property rights. ...
>>(These are two sides of the same idea: there is a "right to emit sparks
>>that may cause fires", and in one case the railroad starts off owning it,
>>and in the other case the farmers start off owning it.)
>>Either way, the result is the same, according to Coase. Neglecting
>>transaction costs (reasonable if there aren't too many farmers to
>>negotiate with), you get a socially optimal balance between spark
>>suppression and fire fighting. The distribution of wealth is different

Robert Ellickson's book "Order Without Law" analyzes a case that provides a good test of Coase's theorem by studying neighboring areas with two different rules concerning whether landowners or cattle owners are responsible for damage caused by cattle. The evidence he found supported Coase's predictions, except that the distribution of wealth did not appear affected by the different rules (informal notions of equity tended to override the influences of the formal rules).

>>Coase's theorem is controversial among libertarians. Some will seize on
>>the idea of property rights to solve problems usually left to government.
>>... On the other hand, introducing new property rights smacks of coercion
>>in itself, to many people (as we have seen here). Property rights in
>>clean air and water may be acceptable; property rights to unobstructed
>>views (common in some areas) begin to cross the line; and intellectual
>>property rights are outside the pale.
>I think the key problem is that most "libertarians" don't like simple
>consequential analyses of legal & political questions, preferring
>axiomatic analyses instead. If they can get someone to accept

I think much of the problem is that libertarians like to make simplifying assumptions such as negligible transaction costs.

>a "no coercion" axiom, then given enough time they expect to be able to
>convince them of the "right" libertarian views on things. If they
>engage in a consequentialist debate, however, talking about what
>policies lead to death, poverty, illness, etc., libertarians fear they
>may have to admit that in some situations the "wrong" policies may lead
>to better consequences. Or they may be forced to invoke an usual
>consequence like "reduces liberty".
>Ideologues of other political views also fear simple consequential
>analyses. They want to invoke axioms like "everyone has a right to
>health care" or unusual consequences like "commodification" to avoid
>possible unpleasant outcomes of simple consequential analysis.
>I embrace simple consequential analysis as a basis for policy
>discussions. I accept that it may sometimes favor anti-libertarian
>views. I also accept that simple consequential analysis may sometimes
>mislead us either because it neglects unusual consequences or because
>there really are some axioms we do not want to violate.

Is this consequential analysis versus axiomatic principle dispute anything more than a debate over the granularity at which to apply the analysis? Your paper seems to be a clear argument against applying consequentialist analysis at the level of "should product X be banned?", and instead applying consequentialist analysis to the axiom that regulators should not be allowed to ban products. Is this any different from what the ideologues you complain of here are doing?

Peter McCluskey          | Critmail ( | Accept nothing less to archive your mailing list