Getting to the Heart of Coase

by Don Boudreaux on June 15, 2004

in Law

My good friend Bob Higgs, economic historian extraordinaire, just finished a first draft of a paper on the Coeur d’Alene mining district in Idaho’s panhandle. (I can’t link to the paper because it’s still in draft form; when it’s linkable, I’ll provide the link.) Bob describes a fascinating instance of firms purchasing property rights in precisely the way that the Coase Theorem predicts.

Early in the 20th century, mining firms in the Coeur d’Alene district became justifiably concerned that the common law would be used to protect nearby farmers from the pollution emitted by the mining operations. These mining firms responded by buying the right to have the by-products of mining operations deposited on these neighboring lands.

As explained by an undated document cited in Higgs’s paper (“Mining Industry and the South Fork Coeur d’Alene River, Shoshone County, Idaho”), starting about 1910:

In most instances [legal] releases were purchased for all past damage if any with easements for the future. In some instances easements were granted for dike construction, in other cases land was bought outright. Actual overflowed land was not only the acreage included in these settlements but any land which was definitely threatened.

The mining companies continued into the 1930s to purchase these rights to pollute.

These companies later purchased rights to emit by-products into the air.

Higgs’s Conclusion is worth quoting at some length:

Economists and noneconomists have different conceptions of pollution. The noneconomist supposes that whenever people emit some substance, usually a by-product or waste associated with producing or consuming goods and services, into the physical environment and thereby alter the preexisting natural state for the worse, that emission constitutes pollution…. For the economist, however, the distribution of property rights has prime importance: if I deposit wastes on my own land, I do not pollute – I hold the right to decide how the area will be used, for better or worse – but if I deposit wastes on your land without your consent, I do pollute.

Well said.

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