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Coase and California

One of the deepest insights of Coase’s 1960 article on externalities is the understanding that externalities are reciprocal and that rules and norms affect how much care people take in a risky situation when they are linked to others.

McCloskey taught me this in my first grad price theory class arguing that if drivers are liable for hitting pedestrians, then they will be more cautious and pedestrians will be more careless. If drivers bear no liability for hitting pedestrians then drivers will be less careful and pedestrians will take more care.

On the surface, this seems silly. It is wrong to run someone over, so justice requires drivers to be liable.

Yet Coase’s point is that it’s not clear which set of rules is socially desirable. If the goal is to minimize pedestrian fatalities from cars, it might be better to have drivers take less care and pedestrians take more care.

A key word in the previous sentence is "might." It might not be. It depends on who can avoid the harm most effectively and cheaply. It would seem in this case, that drivers can avoid the harm most cheaply and effectively, so they should be liable. But the other factor is how elastic the response will be from the side that is not liable. If pedestrians respond to driver care by being very reckless, the outcome could still be very costly.

In this particular case, the whole issue seems moot–after all, how reckless can pedestrians be, especially compared to how reckless cars can be?

And the kicker would seem to be that whether drivers are liable or not, they still feel guilt at running someone over. And pedestrians are going to be badly hurt or killed when they get hit, so how reckless can they really be?

But being out in California for a visit, it is obvious how differently people behave here. Here, unlike much or all of the rest of the country, the pedestrian is king. It is partly a social norm, partly the result of social legislation. The mix doesn’t matter. What matters is that pedestrians cross streets in ways that are very different than in Washington DC where I live. The driver takes more care here. You have to if you don’t want to hit someone.

So here’s my hypothesis. Of the people who do get hit by cars here in California, I would guess that a disproportionate share get hit by drivers who are visiting from out-of-state in rental cars who are not used to the California norms and legislation.

I don’t know if the data are out there. I think the place to start would be with the rental car companies to see if there are higher accident rates involving civilians per mile traveled in California than elsewhere.