To entertain the idea of tradable quotas as a solution to an
externality problem requires a leap of insight. It's not easy and
you have to convince others your crazy idea is right.
Consider the transcript below from Edmund W. Kitch, "The Fire of
Truth: A Remembrance of Law and Economics at Chicago, 1932-1970,"
_The Journal of Law and Economics_, vol. 26, No. 1, Apr 1983, pp.
163-234. Available from JSTOR.
COASE: I think he [Reuben Kessel] was the one who pressed hard for
excluding it. That doesn't much matter. The fact is that there were
these intimations to me that my views were wrong. George then asked
me if I'd come and give a paper or present something at the
Industrial Organization workshop. I said I'd come along if I could
also on some occasion present my views on this other question. Aaron
assembled a group of people at his home. George and Milton were
there, Reuben was there, McGee was there.
DIRECTOR: Lloyd.Mintz was there, I think. Gregg Louis was there.
MCGEE: Arnold Harberger was there.
COASE: I can't remember everybody. I presented my views there and I
had a very difficult time with Milton. He grilled me for half an hour
or more, but when I was still standing at the end of that I felt I was home.
STIGLER: The seminar was one of the most exciting intellectual events
of my life. When, in 1960, he wrote to Chicago and said, "OK, I'll
give a dull workshop if you'll let me talk about why the passage in
my FCC article was not wrong," that was arranged. It was a compliment
to you, Aaron, that a group of really quite remarkable analytical
powers formed at the time. As Ronald says, it contained Aaron,
Milton, John McGee, Gregg Louis, Reuben Kessel, Al Harberger, Martin
Bailey. It was a collection of theorists who were simply superb.
At the beginning of the evening we took a vote and there were twenty
votes for Pigou and one for Ronald, and if Ronald had not been
allowed to vote it would have been even more one-sided.
The discussion began. As usual, Milton did much of the talking. I
think it is also fair to say that, as usual, Milton did much of the
correct and deep and analytical thinking. I cannot reconstruct it. I
have never really forgiven Aaron for not having brought a tape
recorder that night. He should have known this was going to be a
great event because he is a wise man. My recollection is that Ronald
didn't persuade us. But he refused to yield to all our erroneous
arguments. Milton would hit him from one side, then from another,
then from another. Then to our horror, Milton missed him and hit us.
At the end of that evening the vote had changed. There were
twenty-one votes for Ronald and no votes for Pigou.
So, why didn't Sidgwick propose cap-and-trade in 1883? Because that
was way out of his world view. He had no language for this solution
and no way to explain it. Knight was very close in 1926, but it
would take Coase in 1960 to offer property rights as an alternative
to top-down regulation. And several decades more to implement it.
To expect Sidgwick to be that creative seems to me a bit much to ask.
Humberto Barreto
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