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From:
[log in to unmask] (Mason Gaffney)
Date:
Wed Aug 22 07:55:03 2007
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A month ago Kevin Quinn wrote about the Coase Theorem:  "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."

He, like others in this thread, seems to assume too facilely that WTA = WTP,
so entitlements can be treated as all having some objectively determined
value, and WTP is so close to WTA we can pretty well ignore the difference.
There is a wide and tortured literature on "contingent valuation", on WTA
vs. WTP, that should be invoked.

The thing about WTA values, though, is that everyone is different. Any one
or a few holdouts can be as "unreasonable" as they please, like any private
landowner. Like many elderly owners they can say "My entitlement is not for
sale, don't call again". Call it "revealed preference", if you will.  It is
why we have eminent domain.

To my knowledge it was Kneese and Herfindahl who first raised this point.
D'Arge, in an article cited in this thread, also made a similar point. No
doubt others can be found it said it earlier - there always are!

I submit one cannot discuss the Coase theorem while ignoring that WTA >>
WTP, as a rule; and this disparity (along with some other problems) deflates
the theorem.

(BTW, has anyone ever considered that about 30% of the land area in cities
is in streets?  People using them, and breathing bad air there, have no
legal standing to go up against and negotiate with polluters on private
land, or on the streets, either. Ditto for city parks, and national parks.

And how about tenants? Some 1/3 of all Americans are tenants - what standing
do they have to negotiate with polluters?

What about mobile polluters?  Who can even catch 'em, let alone negotiate?

The Coase examples all seem to begin with neighboring landowners, resident
on their own land, with no one else involved. Not realistic, but perhaps
indicative of the image of society in the minds of Chicago economists.)

Mason Gaffney

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