Tuesday, September 24, 2013

Economist's Notebook: On Ronald Coase and Joe Rose

Nobel prize winning economics Ronald Coase passed away recently leading to many eulogies and explanations of his work and, in particular, his eponymous theorem.  I did my part as well.  I have always enjoyed teaching the Coase theorem because it is not obvious until you really think about it and it usually stirs up passions, especially if you use environmental pollution as the example.  But there are many others and one came to mind the other day when reading Joseph Rose's column in The Oregonian about who is at fault when a door opens up an whacks a car or bicyclist (or even, I suppose, a very fast runner).  

Joe explains that it is the responsibility of the opener of the door to avoid whacking people.  This makes sense and is probably uncontroversial, but for me the point is how property rights more or less solves the whacking problem and how it didn't really matter to whom you gave the right - this is what the Coase theorem tells us.  You see you could have given door openers the right to adequate space to open doors and held the bicyclists and other cars at fault for not yielding enough space to do so safely and the same 'efficient' solution would have resulted: folks would be careful not to get too close and no whacking would be done. 

This is just as efficient a solution as giving the cars and bicyclists the right to pass by closely and not be whacked.  Either way the important thing for efficient outcomes is that everyone knows how the property rights are assigned and acts accordingly.  No matter to whom the right was given, efficiency would result from the clear assignment of rights.   

Which is why it is good to have places like the Oregonian and reporters like Joe Rose to make sure people know to whom the right belongs so that efficiency can result.  For it only takes on driver who thinks that they have the right to open their door whenever they want for someone to get whacked.  

NB: This is also why I hate the unsigned intersection which are a plague in Portland. 

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