Since we're on the subject, let me ask the assembled cognoscenti a question
about Coase vs. Pigou. Humberto made the point that Coase's work shows that
in certain circumstances, a Pigouvian remedy can fail. I have seen many
others say this - David Friedman in particular sticks in my memory - and
illustrate with examples like the following: People who live near the
airport are harmed to the tune of, say, $900 by noise from the planes. The
airlines can fix the noise for $600 and people can move at a cost of $400.
Now says the Coasian, efficiency requires that the people move, which would
be the result of bargaining in the absence of transactions costs. (if they
had the right to quiet, the airline can buy the right to make noise at a
mutually beneficial price; if the airlines have the right to make noise, the
people cannot persuade them to be quiet). If however we impose a Pigouvian
tax of $900, the airline removes the noise, which is inefficient. The
fallacy is obvious here, but I think it is operating in the more complex
examples I have seen as well: the appropriate Pigouvian tax is of course
$400, not $900: that is the harm done to the people - it is the most they
would be willing to pay to be rid of the noise. The Pigouvian outcome is
therefore the same as the Coasean: the airlines make noise, since 600> 400,
and the people move.
Also, on the original question about Sidgwick, those of you who have brought
Coase in - surely you are not arguing that TRADE in the case concerned -
directed at improving the climate - will occur in the absence of a mandated
CAP??? And please don't bring up lighthouses - I live on the Great Lakes
and have yet to see a privately supplied one! I don't see why Sidgwick
would have needed Coase to say that if there were in his day,
counter-factually, controls on emissions, that the right to emit should be
traded to achieve the lowest cost reduction.
Kevin Quinn
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