Coase Colored Glasses

Archive for January 19th, 2011


Future post times should be fixed now. Thank you for bringing that to my attention.


How to Properly Zone

As I have been reading from Epstein noticed a few underlying factors that seem to make all the difference when it comes to this style of law. First, as we have discussed in class, property rights are best explained as a bundle of rights tied to a piece of land. For example, he discussed how a taller building may interfere with another buildings airspace. The second point, when a property right has been violated by another we have the narrowness of thought to sue and let a court decide to who has the right. Going back to the first example, is airspace really a part of the property rights bundle. We do not think to sell or lease our property rights to our neighbors. Third, we do nothing that is not in our best interest to do. He discusses historical landmark, wildlands, and endangered species preservation. In the end, everyone wants to take care of property but we are unwilling to pay for it when it comes down to it. He lists the example of the property owned by David Lucas. The state, and the public in general, are usually very willing to protect a beautiful piece of land. I have seen it in my parents neighborhood over in Wellsville. Its a pretty piece of country that looks a lot better without subdivisions in it. Is it worth it to the city of Wellsville though to have to compensate all the developers that already own the property or to allow those that have property already purchased to build. Its a hard question to answer and I feel Epstein was trying to say that the best answer is to allow a person to purchase certain rights, whether its the City of Wellsville buying back the right for the individual to build on the land and keep it as farming land, or for the person that truely owns the land to pay more to really develop the land.

Purpost of government with property rights?

Eipstein undoubtedly has a few issues about the way the United States economy is run.  With property rights in particular he sounds off about the government intervening when private enterprise is much more efficient. Most economists it seems from my reading so far are interested in letting the private competitive market take over. Why then does government so often intervene? A government passed rules before the supreme court decision Lucas v. South Carolina Coastal limiting what a private owner could do with his own property, bought without caveats. Zoning ordinaces are placed in effect, but their must be a purpose. The government can tax our property, take it from of (takings clause of the Constitution) and decide what we may do on it. AlthoughI tend to agree with many economists who articulate the need for less regulation, letting the natural market make things right, their has to be a place for government. Government, at all levels (local, state, federal, and yes, the courts) undoubtedly has a place which I hope to discover through this course. Without any regulation of our property chaos could ensue. I don’t know about you, but I don’t think their are enough private corporations or individuals who would buy off our rights to do certain things on on land: like the governement does today. Economist and Politicians alike share the job of trying to distuinguish where the happy medium, if any,  exists.

Government intervention

“It is not proper to consider only those diffuse social harms that the zoning regulation prevents without considering the social benefits it simultaneously blocks (Epstein).”  For every action taken by government to prevent negative externalities, social benefits are reduced.

In several of the cases stated by Epstein the government had objectives that seemed more emotional than economic.  Politicians are motivated by the desire to get reelected and gain political status.  Therefore they aren’t necessarily looking to find pareto improving solutions, or even efficient ones.

In the case of Lucas v. South Carolina Coastal Council the council seemed to be pushing its own agenda and taking a stand against a homeowner that would have relatively little affect on the community as a whole.  It seems to me like the council was motivated by something other than the desire to improve the overall utility that the community received or the economic wellbeing of the community.

I found it quite satisfying to read that the government ended up losing money on the deal and in the end let the new homeowners build anyways.  Government has the capacity to minimize negative externalities, but unfortunately they don’t always look at the economic implications.  Rather, it seems like they yield to the rent seekers or act in a way to improve the constituents’ views of their leadership.

These things lead to very short sighted objectives that fail to take into count the consequential negative effects of their intervention to minimize negative externalities.  However, it must be recognized that several of the government’s actions actually reduce negative externalities and create more benefits than social costs.

Green Community easy when you’re not paying for it

Epstein is a baller.  First thing that I want to say.  On page 127 of supreme neglect Epstein gives us the court case of Lucas v. South Carolina Coastal Council.  He mentions that the state basically said that he couldn’t build his home in a certain area because of the danger of hurricanes and that kind of thing.  “The stated justification for the ordinance was that it promoted local tourism by controlling development and maintaining open spaces in their natural condition.  But that argument makes the regulation look like a taking for a public use for which compensation is required.”  The first thing that I thought of was… “not surprising”… then, “SHADY.”  Not surprising that the state later changed their position on the matter and said that the real reason was that they prevented building in an attempt to prevent any possible injuries to persons from debris.  Initially this whole argument was a little concerning to me because it seemed like just another clever government ploy to gain land and keep it for the public.  It became even shadier when they felt like they didn’t need to buy the land from the owner that basically bought land that became completely useless to him.  I do understand the worry from the state, especially considering the fact that they really are form a well-known hurricane territory but it was also interesting to hear what Judge Scalia says about the land: “did this ordinance merely ‘confer a benefit on the public at large’ or did it ‘prevent the landowner from causing harm to others?'”  Solid argument! I didn’t even think about that to be honest, but, I felt better to read that Scalia considered it to bot be a nuisance and that he state either had to back off or pay full value for the property. (128)  To end this post I would like to share a quote from the next page that shows how easy it is to side with environmental issues that reads: “It is easy to trumpet environmental values when you don’t have to pay for them.”

Transaction and Friedman

I really like to read Friedman.  He is trying to teach me something when he writes.  Epstein is just making a statement or trying to express and release his genius.  As Friedman explained Pigou and Coase, I enjoyed what he said about the problem with government fines in the section Coase Plus Pigou Is Too Much of a Good Thing. In his example of the polluting factory, he explains the problems with the government fining a polluting factory.  I thought that property rights could be cut and dried, but the last few readings tied my mind in knots.

If a polluting factory had to answer for polluting, it will surely choose the cheapest option.  In this scenario, that is to pay a fine to the EPA.  The EPA gets the money and the factory goes on polluting.  The landowners nearby are still choking on particulates! Problem not solved, and factory has no need to answer.  If the land owner offers to help pay for pollution control, the factory will get that money and be relieved of the fine, and efficiency in solving the problem goes out the window.

Friedman suggests in the last paragraph that the fine be skipped, and the reparations be paid to the damaged.  That way the transaction is efficient.  The money and rights to property use are allocated properly, and given fair value under law.  The government third party, who should merely mediate between the individuals, and protect against rule breakers, is removed from the money standpoint, and only facilitates the rules for the transaction.  Of course it is easy to talk about the situation, and much more difficult in real application.  Friedman himself admits that general rules, while successful in nearly all cases, are not perfect.  I think his combination model would be successful, but I’m just a student in my first U.D. econ class….

Killing Prairie Dogs.

I sympathize with those courts in land use cases who find, as Epstein puts it, “that any coherent approach requires [them] to bite off more than most are willing to chew” (125).  I found the arguments complex, and frankly hard to understand, and this only in a few isolated examples.  In judicial application, this issue seems like it would be hotly contested, and not allow for simple solutions.

But then Epstein offered some simple solutions.  And I thought, wow.  He says, specifically regarding preservation, “a sensible local government could buy the property outright and then sell it off to a private owner subject to restrictions that protect its landmark exterior” (126).  He also mentions the Landmark Preservation Council of Illinois, a private entity capable of the same action.  The economists’ argument for privatization more than government regulation (or free trade over government restriction) is once again logical and compelling.  Granted, there are other issues besides preservation, and honestly I didn’t even understand all of Epstein’s solutions for other cases.  But he seems confident enough, right?

Epstein also brought up the economic view point of “incentives” created by laws and whether they are an efficient means to the desired end.  He referenced the “shoot, shovel, and shut up” method as a way that land owners end up killing the endangered species that the ordinances are meant to protect.  Ironic and sad and inefficient.  I’m becoming more and more confident in the economics approach to law.

I find it hard to understand a lot of what Epstein is talking about.  Nevertheless, despite my short comings in econ jargon I found myself almost agreeing with what Epstein has to say about zoning laws.  It doesn’t take a PHD to realize that he does not like it when the government puts its noses into things.  (I am begging to realize that all economist are Libertarians, but that is a completely different blog post.)

Here is what I understand and what I agree with: that whenever the government decides to control some aspect of private property there are losses.  Somewhere, somehow there was a net loss to society rather than a net gain.  Epstein specifically states this in the case of Penn Central v. City of New York, citing the net loss was well over 2 million dollars.  He sees it as an action where in the City took the air rights, that previously belonged to the private owners.  I wholeheartedly agree that the government over stepped its bounds and flat out took the rights away.  The government should never deprive someone of their life, liberty, or property with out what we call due process of law.  What someone does on their own property is between them and them alone so long as it does not deprive others of their life, liberty and, property.  Yet what I disagree with is the whole notion of efficiency, and I have a feeling that this is going to be an issue for me all through this course.  Why must everything maximize efficiency?  In my opinion, and as a political science major,  sometimes something just needs to be done.  In the cases that Epstein cites it seems that the government messed it up, but not always.  Say the government stopped protecting lands in central Utah and opened them up to the highest bidding oil company.  I’m sure that there would be a lot of revenue generated by those companies, not to mention jobs, and cheaper oil for all of us.  But what would that do to the environment?  Most residents of Utah would probably be all for the oil company to move in,  but again; is it the right thing?  Perhaps what is efficient is not the right thing and will cause more problems for future generations.

Such great readings, so little space to post!

When Friedman talks about the example of a CEO who gives a positive speech about his company and then later the company’s stock drops, he said something I found very interesting that I think can be considered in the context of politics. Friedman states, “One result is to penalize executives for making predictions that might turn out to be wrong, thus reducing the total amount of information available to investors.” (pg 35) I think that happens in politics all the time! Few politicians want to take a stand on an issue, and this bleeds over into government and inhibits government transparency. A politician doesn’t want to make any sort of definitive statement because if it turns out wrong, it will be held against him at election time. Is there a way to give politicians a little back-bone? If a politician were able to be right all the time, he wouldn’t be human, and so perhaps some of the fault lies within us as citizens/voters who expect government and it’s leaders to be saviors. Is there a way in which the political structure could be changed so as to incentivize politicians to expose themselves a little more? Maybe some see such a result as being negative, but I would much rather have an honest government that admits it’s mistakes than a government that tries to play God.

Another section of Freidman’s writing that provoked some thought was when he was speaking about the Coase Theorem and stated, “All rights move to those to whom they are of greatest value, giving us an efficient outcome.” (pg. 39) I have a bit of a problem with this, because in the world of Coase, value is represented by money (at least this is what I have gathered through the authors’ use of examples), and what if somebody doesn’t have the monetary means to express the value he holds for something? A person whose life depends on being able to breathe clean air would certainly value clean air enough to pay off the company producing the pollution. However, if the sick person doesn’t even have the money to move away, then it seems like the rights to pollute would not move towards the person to whom they are of greatest value. I feel like this is a very weak example, but I hope it expresses my point. If a person doesn’t have the monetary means to express the value he holds for something, does that just mean he doesn’t value it enough? I would personally answer no, and I’m wondering if there is something from Coase that addresses this apparent problem.

Finally, I loved Friedman’s point (based on Coase) that “market solutions and government solutions” are “in part artificial, since any market solution depends on a particular set of legal rules established by the legislature and the courts.” (pg. 45) This is something I had never before considered.

Negative Externalities out weight Positive Externalities

            I believe there are the same amount negative externalities as there are positive externalities, I believe people weight the externalities differently.  For example positive externalities are inherently good and the incentive to drive to make it better might not be as high of an incentive as to focus on the negative externality which is having an effect on the person.  I agree positive externalities are easily and often overlooked.  Negative externalities, for the most part, have a bigger effect on people than positive externalities.  It is in peoples best interest as well as their evolutionary drive to maximize their personal or societal happiness.  In other words, “people are self-interested in doing what’s best for them”(Adam Smith).  I believe the reason why people focus on negative aspects more is because it is having a overall effect on their happiness, so the rational thing to do is to focus on these issues and find a solution.  Negative externalities are problems imposed  on people against their free will and infringe on peoples fundamental rights of life, liberty and the pursuit of happiness. These are the reason why people fight against them.  With negative externalities it is easier to identify what changes need to be made, because negative externalities are defined problems with possible solutions.  

            Now one of the bigger questions is how can you tackle these externalities, can you put a price on the cost and if so how do you determine a price or who determines the price?  One way you could do this is to “internalize” the third party cost.  For example, the coal plant that is polluting the air could pay for the damages, however, there is no exact way of determining monetary value of the damages.  There is also ethical concerns, preferences, and how to determine value for resulting externalities.