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Coase and Covid

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My latest column for AIER is co-authored with Lyle Albaugh. It’s the first of a two-part series applying Ronald Coase’s insights about externalities to the covid lockdowns [2]. A slice:

Yet exploring the implications of this reality, as Coase did, produces deep economic insight. Because Jones cannot harm Smith unless Smith is in a position to be harmed by Jones, in principle Smith can reduce, or even escape, the harm he suffers from Jones by removing himself from a position in which he experiences consequences of Jones’s actions.

Are you kept awake at night by your neighbor Tom practicing his tuba? You wouldn’t be if you lived elsewhere. Is Tom annoyed when you persuade the building manager to order him to stop practicing his tuba at midnight? Tom would suffer no such annoyance if he lived alone in a house far from neighbors.

The point here is not to say that you are as much to blame as is Tom for your being kept awake by his midnight tuba practice sessions. Rather, the point is that your choices, and not only Tom’s, play a role in your suffering this annoyance. Assignment of blame – or, more formally, assignment of legal liability – requires an assessment of the property rights that you and Tom each have in the air that you both share.

Does each tenant possess the right not to have the air in his or her unit vibrated noisily at night? If so, Tom is in the wrong to use his tuba in a way that keeps you awake at night. Or does no tenant possess this right? If so, you’re in the wrong to complain about Tom’s midnight tuba playing.

Each activity here – playing a musical instrument and sleeping – is perfectly innocent. Also, neither party intends to harm the other. Instead, we have an innocent conflict over the use of a scarce resource, namely, air space in an apartment building. So what to do?

In practice, people in the position of you and Tom typically go to court. (It could be a formal court of law, or, as is more probable in this example, the informal ‘court’ presided over by Lou, the building manager.) The court – which, let us presume, is impartial – hears your complaint along with Tom’s defense. It then renders a decision.

In this case the decision will certainly be in your favor. The reason is that the court will know that most people have a reasonable expectation of being able to sleep at night undisturbed by avoidable noises emitted by neighbors. Although the court might not be consciously aware of the full details of its reasoning, it will understand that the cost that Tom must endure to avoid playing his tuba at night is less than the cost that you must endure if he doesn’t. If the court were to rule in favor of Tom, you’d practically be compelled to move to another apartment or to install expensive sound-proofing in your walls and ceiling – meaning that you’d have to incur a cost much higher than the cost that Tom incurs by not practicing on his tuba at night.

In short, the ‘correct’ decision is the one that resolves the conflict over the use of scarce airspace at what is likely the lowest cost. Although you could solve the problem by moving or installing soundproofing, the responsibility is on Tom to solve it by keeping quiet at night.

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In a comment [3] to my posting of this column at Facebook, John Kannarr offers this very insightful observation:

Most people say they won’t accept a vaccine unless and until it is proven safe and efficacious. Why did they accept lockdowns and other policies that were never proven either safe or efficacious?

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