Large Numbers, Small Numbers, and Coasean Bargaining

by Don Boudreaux on June 17, 2011

in Complexity & Emergence, Prices, Property Rights

Bargaining achieves Coasean efficiencies even if that bargaining is so strategic that it prevents exchanges that would take place in the absence of the strategizing – or so I argue in this 1996 Advances in Austrian Economics article.

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Tim June 17, 2011 at 3:41 pm

Every now and then you link to something that’s totally over the heads of everyone reading this blog. This sounds brilliant, but unfortunately, I don’t think I grasp it at all.

Don Boudreaux June 17, 2011 at 3:43 pm

If it sounds brilliant, then I’m sure you don’t grasp it all ;-)

It’s a piece written for professional economists; I put it up on my blog so that I – and future students to whom I assign it – have ready access to it.

Mathieu Bédard June 17, 2011 at 3:57 pm

And indeed thank you! We don’t have this volume here.

Tim June 17, 2011 at 4:06 pm

Well, if you ever want to give your (simplified) take on Coase and externalities adapted for laypersons, it sounds like it would be impressive.

Methinks1776 June 17, 2011 at 8:40 pm


The pages were scanned in sideways. You might have better luck understanding it if your printed out the document and turned the pages right side up :)

Mesa Econoguy June 18, 2011 at 5:57 am

Vertical bias.

Name Redacted June 17, 2011 at 8:32 pm

Hey Don, I know this is off topic but have you read The Cathedral and The Bazaar? Its really Hayekian, actually rather amazingly so.

Against the grain June 18, 2011 at 12:46 am

Dr. Boudreax,

I will have to concur with your earlier commentor that it was brilliant. I have no problem acknowledging that I did not grasp it all.

One other benefit is that with the imperfect competition you have the possibility the home owner negotiating for $40 the reduction of 80% of the soot that would have been willing to pay $50 for said reduction. This option may have been able to leave the factory with $40 profit from operations and $40 payment from the injured house resident. These nuanced solutions are not generally available with centralized plans.

I do have a question about the pigovian tax. Let say the government sets the price correctly at $60. Since this price is applied to all factories the price of goods from the factory go up, and their is a slight reduction in pollution. But the injured citizen still gets $50 worth of pollution. The centralized power has to incur its own transaction costs to collect the $60 and here is the kicker the transactions costs of not giving it to the “portion of the society that is injured” is small. This injured portion of the society still has the same effective collection action problem extracting payment from the tax collector. For example Cigarrate Taxes rarely go to health care of old smokers, auto congestion taxes are frequently diverted to rail transit. These diversions of pigovian taxes equal distort the new markets where they flow and are rife with rent seeking transactions costs that make the probability of inefficiency very high.

Thank you for your great work.

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