Coase v. Rand

Bill writes:
>If the alternative for the offending business (let us call it a Paper Mill) were either to close down or to offer you *a mutually agreeable form of compensation for the lost fish*, I'm sure it would consider the latter the more satisfactory alternative...(emphasis DB)

If I understand you correctly, this would mean that in your ideal system you would now have the legal power to close the factory over a single dead fish.

This makes the negotiating value of the one dead fish approximately the same as the value of the factory remaining open. Thus there is little that is "mutual" about any compensation agreement - you can take him for millions, and there is nothing he can do about it - and it would certainly be within your self interest to do so. The words 'moral hazard' spring to mind, among others.

Surely such a situation would make a "mutually agreeable form of compensation"...er...problematic? Much more problematic than you're assuming?

- Daniel

Post 61

Sunday, October 2, 2005 - 7:06am

Hey MSK,

Maybe I should just wait for your article. I maintain that the better view in natural rights theory is that moral/natural rights exist even if you're all alone; they just aren't meaningful. In history, many natural rights theorists don't explicitly deal with whether the solitary individual has rights, and many natural rights theorists today reject that the solitary individual has rights, which I think is a mistake.

Not that it matters, but the Founding Fathers seem to favor my take on (moral/natural) rights, not yours, in asserting that we are endowed by our creator with unalienable rights. We got 'em, whether on that desert island or in Manhattan.

Anyway, I would agree with you that legal rights require more than one person.

The ethics of Coase are more based on survival of species or something like that.

No. Coase doesn't mess with ethics. In his essay, he's concerned only with harm-minimizing (or wealth maximizing) efficiency. Anyway, it's the following bit that makes me think you agree with my seperation of natural/moral and legal rights:

What's on the books are still rights, though. Just not rights based on ethics derived from the nature of man and reality, but on the word of Allah instead.

eh. I still look forward to your article.

Jordan

(Edited by Jordan on 10/02, 7:25am)

(Edited by Jordan on 10/02, 7:29am)

Post 62

Sunday, October 2, 2005 - 7:11am

Hey Bill,

I appreciate your response about Coase. That's the kind of critique I was hoping for. If I could get you to clarify something...

His position was that it doesn't matter in whom the property right resides. True, it doesn't matter in order for his bargaining scheme to work, but it ~does~ matter if individual rights are to be upheld and people are not to be at the mercy of leviathan.

So for individual rights to be upheld, we should use first in time? Why won't they be upheld if we use Coase's harm-minimizing bit?

Jordan

(Edited by Jordan on 10/02, 7:30am)

Post 63

Sunday, October 2, 2005 - 8:56am

I will not accept compensation. I demand that the destruction of my property stop.

Post 64

Sunday, October 2, 2005 - 9:02am

Jordan,

No use trying to push me into agreeing with you - I have a good solid definition of rights (but you have to wait for the article - I don't want a lot of blah blah blah that goes nowhere from some - not you - that any attempt to discuss this issue has generated in the past without being able to give a full exposition).

These "natural rights" that a person has. Do you have any kind of definition for them that sets them apart from social intercourse? Or even the defining characteristic that sets them apart from legal rights, except for the obvious being a law thing? (Many things are law, but that does not make them a right.)

Or do you believe in God and think that rights are something that he just did without rhyme or reason?

For instance, the right to life. Do you believe that man has a right to life because it is endowed by God? Then you would have to agree that bunny rabbits have the same right. Or chickens or livestock in general. Then comes the obvious conclusion that we infringe their "natural right" by eating them. They apparently do too because animals (and bugs etc.) constantly eat each other.

Michael

Post 65

Sunday, October 2, 2005 - 10:00am

Daniel Barnes quoted me as follows -- "If the alternative for the offending business (let us call it a Paper Mill) were either to close down or to offer you *a mutually agreeable form of compensation for the lost fish*, I'm sure it would consider the latter the more satisfactory alternative...(emphasis DB)*." -- and replied, "If I understand you correctly, this would mean that in your ideal system you would now have the legal power to close the factory over a single dead fish."

Yes, because I would have the legal power to stop him from killing my fish, however many or however few it happened to be. But the point I think you're missing is that it wouldn't be in my interest to exercise that power, for it would be in his interest to offer me something more in compensation than the value of the fish he is destroying, in which case, I would be better off accepting his offer than forcing him to close down. I wouldn't demand that he pay me more than he could afford and still stay open, because that would be against my interest. In fact, I would be willing to accept as little as a penny more in compensation than the value of the lost fish (less the cost of negotiation), if the alternative were that he would close down.

You continue, "This makes the negotiating value of the one dead fish approximately the same as the value of the factory remaining open."

~For him~, yes. But you're looking only at one side of the bargaining process. The negotiating value ~for me~ is that I get something - ANYTHING - more than the value of the dead fish in compensation. I would accept a PENNY more, if I thought he would close down rather than pay me anything extra.

You add, "Thus there is little that is 'mutual' about any compensation agreement - you can take him for millions, and there is nothing he can do about it..."

But he knows that it's not in my interest to demand more in compensation than he is willing to provide. If I demand too much, he could liquidate his business and move his capital elsewhere. It would be as self-defeating for me to demand too much in compensation as it would be for him to offer too little, because I could lose the extra profit I would make if he stayed open.

You continue, "...The words 'moral hazard' spring to mind, among others." On the contrary, this is no more an occasion of moral hazard than the bargaining that goes on between employees and an employer. If the employer offers too low a wage, the workers can reject the offer; if the workers demand too high a wage, the employer can refuse to hire them. What is the alternative? To force either party to accept the other's demands - i.e., to violate its rights. Speaking of moral hazard, what makes you think that giving the state the power to settle a dispute by violating the rights of either party is not itself a moral hazard?

- Bill

Post 66

Sunday, October 2, 2005 - 10:12am

�Yes, because I would have the legal power to stop him from killing my fish, however many or however few it happened to be.� [Bill]

Good. I choose to shut the enterprise down. I don�t like them. I am rich and I don�t need what they are offering in compensation. Shutting them down feels good. Damn, absolute property rights are awesome!

Post 67

Sunday, October 2, 2005 - 10:16am

MSK,

These "natural rights" that a person has. Do you have any kind of definition for them that sets them apart from social intercourse?

If you read natural rights theorists like Grotius, Puffendorf, Locke, and Bastiat, you'll find a sentiment that rights derive from doing that which is necessary so that we may live a proper and just life. Rand echoes this sentiment when she writes:

Rights are conditions of existence required by man's nature for his proper survival. If man is to live on earth, it is right for him to use his mind, it is right to act on his own free judgment, it is right to work for his values and to keep the product of his work." (from Galt's Speech).

For natural rights theorists, this can hold whether we're alone on a desert island or in Manhattan.

And yes, I have a non-society-dependant definition of rights. In my view, moral rights are best viewed as liberties with which others may not morally interfere. Again, I could have the same liberty in Manhattan that I have on the desert island. In both cases, that liberty is a right only if others may not morally interfere with it. Only, it's not terribly useful to say that others may not morally interfere with a liberty when such interference is not a reasonable possibility. So on the desert island, identifying which liberties are rights is not terribly useful.

Yet they still exist, and conceptually, this framework for moral rights is quite useful. It avoids the problem of moral rights depending on society. Why is this a problem? I could elab but basically, that framework suggests that I have moral rights only by virtue of other people's existence, that my moral rights are predicated on other people, and not my own life. This makes my moral rights other-centered, a big no no. There're other incoherencies that I can flush out in the moral-rights-depend-on-society view, if you like.

Oh, and I find legal rights best viewed as liberties with which others may not legally interfere.

And just so it's clear where I stand, no I do not believe that a god exists.

Jordan

Post 68

Sunday, October 2, 2005 - 11:27am

I wrote,"'His [Coase's] position was that it doesn't matter in whom the property right resides. True, it doesn't matter in order for his bargaining scheme to work, but it ~does~ matter if individual rights are to be upheld and people are not to be at the mercy of leviathan."

Jordan replied, "I appreciate your response about Coase. That's the kind of critique I was hoping for. If I could get you to clarify something... So for individual rights to be upheld, we should use first in time? Why won't they be upheld if we use Coase's harm-minimizing bit?"

Because the concept of "harm" depends on the concept of "rights," which is the very point that Coase is ignoring. If in order to go into business, I have to rob you to get the start-up capital, am I being harmed if I am prevented from carrying out the robbery? I will clearly lose the opportunity to make money, but we wouldn't therefore say that by being prevented from robbing you, I am being harmed even financially. What this illustrates is that the concept of harm depends on an antecedent concept of rights. Since you have the right to the money, you are being harmed if I steal it, but I am ~not~ being harmed if I am prevented from stealing it.

Coase's rejection of this view is clearly evident in the following statement: "The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A [Wrong!]. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm."

If Rand were replying to Coase, she should ask him to check his premise - namely that "to avoid the harm to B would inflict harm on A." For if B has the property right, then avoiding the harm to B would NOT inflict harm on A. Thus, it is not a question of avoiding "the more serious harm," for that assumes that defending the rights of the property owner inflicts ~some~ harm on the trespasser and the only question is, which of the two parties bears the ~the greater~ harm. If one recognizes that the trespasser is not harmed ~at all~ by being prevented from trespassing, one sees that Coase's "real question" as to who bears "the more serious harm" no longer has any merit. Nor, by the same token, can one determine who has the property right by reference to "the more serious harm," if who is harmed depends on whose property rights are violated.

- Bill

Post 69

Sunday, October 2, 2005 - 12:02pm

Bill:
>~For him~, yes. But you're looking only at one side of the bargaining process. The negotiating value ~for me~ is that I get something - ANYTHING - more than the value of the dead fish in compensation. I would accept a PENNY more, if I thought he would close down rather than pay me anything extra...If I demand too much, he could liquidate his business and move his capital elsewhere.

Hi Bill

I guess this works cos you're nice. You'd accept a penny. I'm not, however...;-) I decide to set the compensation level for the dead fish at 80% of liquidating the company - several millions. Pay up or close. I've now extracted several million bucks from a company for a dead fish, fully backed by the weight of the law. Sweet deal. Gets a lot of publicity. Suddenly, similar court cases start springing up everywhere. And there was always some lingering doubt as to where that dead fish came from in the first place...

And Jon Letendre, he's even less nice than I am...

Bill:
>But the point I think you're missing is that it wouldn't be in my interest to exercise that power...

No, as I've demonstrated above. it is clearly in your interest. Or at least in someone's.

- Daniel
(Edited by Daniel Barnes
on 10/02, 12:03pm)

Post 70

Sunday, October 2, 2005 - 12:20pm

Bill,

I don't see how concept harm depends on the concept rights. For example -- and I've been over this before on OWL -- I don't have the right not to be cheated on by my girlfriend, or unjustly ridiculed by my peers, yet I think it's safe to say that I'm still harmed if she cheats or if I'm unjustly ridiculed. Also, I know you reject that animals have rights, but certainly you don't reject that they can be harmed. These cases should demonstrate that harm doesn't depend on rights.

But even if harm did depend on rights, it's still not clear to me how to determine who has the right. We can't appeal to the question of who is harmed, much less to the question of who is harmed more, as Coase would, because those appeals place harm before rights, which you disallow. So how do you determine who has the right? If you determine it by way of first in time, why?

Jordan

Post 71

Sunday, October 2, 2005 - 12:24pm

�Yes, because I would have the legal power to stop him from killing my fish, however many or however few it happened to be.� [Bill]

Jon replied, "Good. I choose to shut the enterprise down. I don�t like them. I am rich and I don�t need what they are offering in compensation. Shutting them down feels good. Damn, absolute property rights are awesome!"

That could happen, but it's very unlikely. If you were that irrational, you would probably not be running a profit-making business in the first place. If you're in the fishing business to make a profit, then you're not so rich that you would turn down an opportunity to increase your profits simply because you don't like the people running the paper mill.

On the other hand, if you don't have a right to your property, then the government can shut ~you~ down if it doesn't like you because you failed to grease the palms of its bureaucrats. Either you have the right to determine the disposition of your property or someone else does. There is no third alternative. So if the right does not lie with you, then it lies with someone else (e.g., the government). If you don't like the idea of absolute rights, say hello to absolute power!

You can, of course, argue that the government would never do that - that it would never shut you down for failing to pay off the right people - but I would say that there is a far greater likelihood of that happening than for you to turn down some extra profit if you are in business to make money.

- Bill

Post 72

Sunday, October 2, 2005 - 12:45pm

Bill,

It isn�t unlikely in the least. I am not in business. I am a grumpy old shit who bought this land to live my last days with my hands on a fishing pole. I hate industry and I am delighted whenever I can shut them down. It thrills me, makes me happy.

You wrote: �On the other hand, if you don't have a right to your property, then the government can shut ~you~ down if it doesn't like you because you failed to grease the palms of its bureaucrats.�

What are you talking about? I have an absolute right to my property, that�s why I will not tolerate any destruction of it. I�m not following your tangent.

Jon

Post 73

Sunday, October 2, 2005 - 1:16pm

Daniel, suppose the paper mill decides that it doesn't want to pay several million in damages - that it can more profitably divert its capital elsewhere - so it closes. You just lost the opportunity to make several thousand dollars in extra profit had you asked for that instead of several million, or several hundred had you asked for that instead of several thousand, or even something less than several thousand had you asked for that. What you will presumably ask for is therefore what you think you can get rather than what you would like to get. I'm not saying that you would ask only for a penny more, (although you would if you thought the Paper Mill would close rather than pay it). I am saying that you would prefer even a penny more to nothing at all, and nothing at all is what you would get if the Paper Mill does close down.

As a job applicant, do you ask for a million dollars if you don't think you're worth it? Doing so is a good way to stay unemployed. Nor will a business offer you a minimum wage if it thinks you're worth a million dollars. When people bargain, they are careful to anticipate the likelihood of their offer being accepted. It is no different in the case of the fishery and the paper mill. The fishery wants the paper mill to stay in business, so it's not going to risk forcing it to close down.

You also seem to think that there is some moral principle that is being violated by the fishery's asking for an amount of compensation that is highly profitable. But why? Isn't a business entitled to make as much profit as it can? What the fishery is asking is that if the Paper Mill wants to use its property (i.e., its fish), it pay for the right to do so. The fishery can ask whatever price it wants. If the paper mill doesn't want to pay it, then it can divert its resources elsewhere, or it can make a counter offer. That's the nature of bargaining, but bargaining presupposes property rights; it presupposes that each party owns that which it is seeking to trade. Otherwise, there is nothing to bargain with. The fishery owns its fish. If that means anything, it means that they cannot be taken or destroyed against its will. If they can, then the fishery does not own the fish, in which case, it has no right to object to anything that the Paper Mill does to them. Either you own something or you don't. That is the sense in which property rights are absolute.

- Bill

Post 74

Sunday, October 2, 2005 - 1:46pm

Jordan, you wrote, "I don't see how concept harm depends on the concept rights. For example -- and I've been over this before on OWL -- I don't have the right not to be cheated on by my girlfriend, or unjustly ridiculed by my peers, yet I think it's safe to say that I'm still harmed if she cheats or if I'm unjustly ridiculed."

I thought we were using "harm" in the legal sense - the sense in which you can be held liable for it. In that sense, harm presupposes rights. You can argue that if I fire you from a job, you are harmed, because you are now out of work and may have difficulty finding another job. But would you argue that if you suffer more by being fired than I do by keeping you on the job (assuming that could be measured), I would have no right to fire you? If not, then you are granting that by firing you, I have not "harmed" you in the legal sense of that term.

You continue, "But even if harm did depend on rights, it's still not clear to me how to determine who has the right. We can't appeal to the question of who is harmed, much less to the question of who is harmed more, as Coase would, because those appeals place harm before rights, which you disallow. So how do you determine who has the right? If you determine it by way of first in time, why?"

Are you asking how original property is acquired? Locke argued that it is acquired by a person's mixing his labor with a natural resource to produce something of value. As I understand it, this is the Objectivist view, as indicated by Rand's support for the Homestead Act, according to which a person acquired a plot of land by farming it for a certain period (in this case, for five years). After that, one is free to transfer title to another person either by gift or by sale.

What is the justification for Locke's view? Well, if you don't have the right to something you produce, if someone can deprive you of it against your will, then how is it that he can be said to have a right to it? Wouldn't someone else also be justified in depriving him of it against his will? If you reject the notion of production as a basis for original acquisition, what you are left with is "might makes right." You are left with world in which violence rules the day.

- Bill

(Edited by William Dwyer
on 10/02, 1:59pm)

Post 75

Sunday, October 2, 2005 - 4:09pm

Hi Bill,

I thought we were using "harm" in the legal sense - the sense in which you can be held liable for it.

Arguing that liability presupposes legal rights is not terribly controversial. I thought we were just talking about garden variety harm. Coase in particular, I think, is talking about economic harm. Not important.

What's important here is why we should prefer Locke's labor theory of property acquisition over Coase's property acquisition through efficient allocation (i.e., through bargaining unless that's inefficient, then through harm minimization).

And you provided an answer. Thanks. It brings me back to something I said earlier in this thread. It's not always clear who has the right to produce something that two (or more) party's productions depend on. See the meat/crop and the doc/confectioner examples.

When it's unclear, let's agree that courts are around to provide such clarity. The question is: how should they determine who has the right? Should they just take a harder look at who was first? I suspect this is what you'd say, opining the any second-comers are really trespassers. But it's a false alternative to suggest that it's either "first in time" or "might makes right" because Coase poses a third option: allocate the right in such a way as to yield the economically efficient outcome.

Thanks again for answering my question.

Jordan

Post 76

Sunday, October 2, 2005 - 7:13pm

Hi Jordan,

===========
But it's a false alternative to suggest that it's either�"first in time"�or "might makes right" because Coase poses a third option:�allocate the right�in such a way as to yield the economically efficient outcome.
===========

First off, you can't go without the value qualifier when you characterize the objectivist position -- something I successfully outlined 50 posts ago. "First in time" -- from the Objectivist position -- is really: "First in time, to mix labor with raw material, to produce value."

And Coases 3rd option really is just to let "economic might" make right. The more you have to lose, the more rights you are granted in the courts. This systematically prevents those who don't yet have much to lose -- from gaining a foothold in the economy. A real-life example is law surrounding products produced by Archer Daniel's Midland. Due to "economic-utilitarianism" that is strikingly similar to Coase's crazy case for court-controlled cutthroat corporatism: price controls (to more than twice the world price!) on cane sugar.

ADM makes the corn syrup for the major brands of soda pop, condiments, candies, etc. -- free of competition from cane sugar, etc. BECAUSE OF LAW. Corn syrup, due to it's high fructose content, is more unhealthy than cane (ie. our "law" is creating disease that wouldn't have been here) -- but that is somewhat peripheral here.

Clinton's forcing us to use ethanol by federal mandate -- because corn growers, and again it's ADM, as ADM produces half of our ethanol (from corn), because corn growers had "something to lose" if we weren't so forced -- is another horrid example; recently expanded (doubled) by Bush's recent energy policy. ADM has a long history of "relations" with the "might" who had been trusted to make things "right" (e.g. their chairman paid the tuition for Vice President Humphrey's son, etc, etc, etc).

Coase's "third option" is, essentially, not significantly different from these examples of forced economic decisions (beneficial for ADM, who had "much to lose") of price controls, and of mandated use of a specific product.

Ed

Post 77

Sunday, October 2, 2005 - 7:23pm

Jordan,

I hate to say it, but based on your statements, your concept of rights is not derivative - it is intrinsic to man (intrinsic to nature, actually, from the way you stated it - just substitute "man" for "bunny rabbit" and you will see what I mean).

I will be addressing the intrinsicist view in my article, but meanwhile, Robert Bidinotto wrote a marvelous essay on the instinsicist concept of rights here on Solo - Getting Rights Right.

Michael
(Edited by Michael Stuart Kelly on 10/02, 7:25pm)

Post 78

Sunday, October 2, 2005 - 8:21pm

Jon, you wrote, "It isn�t unlikely in the least [that I would accept no compensation and force the paper mill to close]. I am not in business. I am a grumpy old shit who bought this land to live my last days with my hands on a fishing pole. I hate industry and I am delighted whenever I can shut them down. It thrills me, makes me happy."

Pardon me, Jon, I misread you. I thought you were talking about a business. Okay, gotcha. You're a strange old coot that's impervious to financial incentives - kinda like the old gal who wouldn't sell her property to "The Donald," so he invoked the law of eminent domain against her, nice guy that he is. Well, in that case, you do have that right; after all, it's your property. But you've got to admit that most property owners are not so misanthropic that they would turn down a handsome offer for what amounts to a miniscule encroachment on their property.

I wrote: �On the other hand, if you don't have a right to your property, then the government can shut ~you~ down if it doesn't like you because you failed to grease the palms of its bureaucrats.�

Jon replied, "What are you talking about? I have an absolute right to my property, that�s why I will not tolerate any destruction of it. I�m not following your tangent."

I thought your comments involved a sarcastic objection to the idea of absolute rights. Again, my apologies. But, let me ask you: what exactly was your point, if not the latter?

- Bill

Post 79

Sunday, October 2, 2005 - 9:18pm