Shadow Prices in a Toy Economy

I spend a lot of time thinking about prices. Probably more time than is good for me. My first Big Boy Pants price theory was hand-delivered from an out-of-press Alchian and Allen Exchange and Production (nb, the top billing that "exchange" enjoys in the title is something regular readers of EE will appreciate) via Walter Williams. But graduate level Microeconomics I was hardly the end of my obsession with the subject. Cost and Choice, a breezy little treatment by the late James Buchanan and the occasional lecture by our own Mike Munger also top the list of influences. It was Buchanan that got me thinking of subjective value (though I think my pals at Sweet Talk might prefer to call it conjective value) on both the consumption and the production side, and it was Mungo who urged me to think carefully about the wide range of opportunity costs and the many otherwise unnoticed frictions of ordinary commerce.

I recently had a Munger Moment visiting Colonial Williamsburg with my niece who is visiting from Lithuania for the month. If you've not been there before, it's a working recreation of the actual 1750s era town, complete with brickyard; milliner; cooper; baker; forge; foundry; loom; smiths tin, black, and silver; & sundry. There's even a dedicated period-appropriate toolmaker who uses modern equipment to craft the tools used by the on-site artisans using the same steel that would have been available at the time. The bit that intrigued me started at the brickyard. While the barker was giving his pitch to the punters, I tugged the ear of one of the other folks working there to ask her why the sundried bricks had what appeared to be a cattle brand on it. She explained to me that the bricks they fired there in the traditional style were actually used on-site for repairs, renovations, and for new projects. Since they were obliged to be period-accurate, they have to distinguish the brick sizes on account of everything predating the standard 220/73/106mm dimensions in use today. Moreover, despite being a tourist attraction, they're one of the few brickyards in the US to use traditional firing methods to create non-standard bricks, so folks owning old brick homes in historical districts often buy from them, especially if they need to replace vitrified or hot-fired bricks.

My curiosity rose as we visited further. At the tinsmith, we discovered that not only were wooden mallets, fids, hods, and scrapers produced on-site, but a great many other easily-manufactured goods as well. It's pretty tough to work with tool steel when you've got a foot-cranked grinding wheel, but cast iron is easy enough to work in the style of the period. Much of the cookware comes right out of the foundry on site. Costumes too, even if the fabric is imported (which is also period-appropriate, since Virginia only grew the cotton; all the textile mills were either up north or across the pond). The really interesting bit was when I saw that some of these same goods used and manufactured on-site were on sale in the gift shops. So between the bricks, the tricorn hats with or without cockades, the wooden dice games, the horseshoe puzzles, and the rag rugs, there are three market tiers: a wholesale market (bricks sold to homeowners in Old Town Alexandria), a retail market (hurricane lanterns in the gift shop) and a shadow sharing market (can you fix my solder oven? I'll owe you a favor later).

Now, ordinarily, we'd just impute the formal market price to the shadow market to determine what the opportunity cost of this local sharing economy is, but casually watching it in action on a lazy summer afternoon gives me pause. I think there's a little something else on the balance sheet in the trade between the park employees that doesn't exist across from a cash register. I think some of it is what the accounting trade calls "goodwill," but I also think there's a special residual for cases like these that rely heavily on in-group aesthetics. You probably already know the literary trope that has the plucky hero earn the "special price just for the family" thanks to some courageous act of derring-do. There's some truth to that. Cherished in-groups enjoy a favored-customer status. Some of it's probably because of reputation effects, but I suspect a lot of it is just atavistic clannishness. I'm a little out of the loop on the current experimental econ lit, but I imagine that you could test it pretty easily in the classroom. Randomly assign folks to a blue team and to a green team, let them trade within their team for a while, then let them trade with each other. My hypothesis is that Team Green will charge higher prices to Team Blue members, and I also suspect that this effect will intensify when the objects traded are more tangible and personal (cups or sweaters in contrast to financial instruments or tokens).

I didn't press the girl in the tinsmith shop to elaborate on the economic institutions (my niece was a little tired and footsore), but if I'd had the time I think I would have asked her to describe the local economic system. I think she would have gone with "communism" or some variant, because she was about half a syllable from uttering "from each according to his ability, to each according to his need" (REMINDER: Marx didn't write that, he just popularized it). And I think there's some merit to that. I also think there's a great deal of merit to Bastiat's counterclaim that while you're wearing the 18th c. duds, it might be easy to overlook that Colonial Williamsburg is still just a tourist attraction. It's embedded in the institutions of the 21st c. Without the external prices listed in the shops, the tough decisions of "what shall I produce" and "for whom shall I produce it" are nigh insoluble. Without the residual ownership of the entire enterprise, and the motivation of being a colonial-era theme park that exists to entertain tourists, can you imagine that a bunch of college-aged kids would show up to sew breeches and bake bread for each other?

Like I noted with one of my favorite old posts here, barter, gifts, truck and other lesser forms of commerce are at their most euvoluntary when the alternatives of impersonal, anonymous exchange are also available. I'm coming around to the argument that the new sharing economy (Uber & al) merely reinforce those same moral intuitions. People really like to share, to be a part of a community rather than one cog out of many. Humanity isn't merely eusocial, it's social as well. The app-driven sharing economy allows us to be both at once. And I don't know about you guys, but I think that's pretty awesome. Uber, except for the day-to-day commerce of a model local economy.

Mind Your Manners

As near as I can tell, this arrangement seems perfectly euvoluntary. Odd then that both the headline and the content of the story seems to have been written to maximize obnoxiousness.

The "Mother's Dilemma" is the economic question of how to organize household resources. Typically, household wealth is commonly held and decisions over who gets what are determined by either a single dictator or a joint committee. What mom and dad say goes. But if other families want to allocate their resources differently, it boggles the mind that such decisions could possibly be anyone else's business. The relationship between home and castle seems increasingly tenuous. More's the pity.

Of Deeds and Unpunishment

Rescuing a suffering animal is a noble act. Every so often, a noble act requires sacrifice. Not all sacrifices are offered by he who performs that kind act of nobility.

Michael Hammons of Georgia discovered that saving a dog by smashing a window carries with it the risk of arrest. The property owner says he's a vandal. Everyone else with a shred of conscience says he's a hero.

I wonder if anyone bothered trying to find the owner before busting the window. "Diane Byard says she and a group of shoppers noticed the dog in the car and were waiting on police before Hammons came."

"Waiting on police." Not "getting the store manager to issue a loudspeaker announcement," or "canvassing passersby." There's a problem? Call the cops or hope that an action hero stops by. Heavens forfend  we might attempt to solve a problem civilly.

People, with constituents like these, is it any wonder that criminalization has gone over-the-moon berserk? Be a good citizen. Be a good neighbor. Smashing folks' windows to rescue hot dogs is a last resort. If there is a social contract, amending the terms and conditions towards a more euvoluntary arrangement is surely in everyone's best interest. Yes?

Dirt Mall Blues

The story: elderly Houston couple runs routine garage sales to help make ends meet. Neighbor complains, city gets involved. The city's suit aims to shut the impromptu flea market down for violating the terms of the deed. Evidently, open-air commerce is not one of the sticks in this bundle of property rights.

Regular readers should recognize the essentials of this case from a notorious potato chip-themed video. Art and Betty are Jorge Ramos and the customers, respectively. Carl is the grumpy neighbor who presumably feels as if the noise and bustle of the ad hoc dirt mall infringe his own implied property rights of a peaceful neighborhood free of the sorts of undesirables that scrounge for attic treasures.

As Munger notes in his own voice (sadly absent the wig), the most Coasean of all Coasean solution is... wait for it... manners. The Whole of the Law includes, contrary to the prescriptions of A. Crowley, an ordinary respect for your neighbors. Mutual respect.

The news reports I've found don't say whether or not the aggrieved neighbor tried bargaining with Mr. Ramos before petitioning the government for redress of injuries. From afar, it seems tragic that a property dispute like this ends up in the courts. Let's hope they get lucky and end up with a mutually felicitous outcome.

Don't hold your breath though.

Part of conventional ownership is statutory, denoted in titles and deeds and whatnot. But the bulk of ownership conventions are tacit. Expectations for what it means to not be a jerkwad neighbor emerge from the complex daily interplay we learn along the grand boulevard of eudaimonia. It sure would be nice if we'd replace some of the burnt-out bulbs lighting the way. Bring back virtue ethics.

Dr. Duty or: How I Learned to Stop Worrying and Love the Thick vs. Thin Libertarian Squabble

"Never to use violence more to his country than to his parents." Cicero's Divine Maxim of Plato appeals to an innate sense of justice ideally found in both the sovereign and the constituent. The sovereign has the responsibility to respect the autonomy of the constituent not to exceed acts egregious enough to warrant clapping mom and dad in the pillory. And the constituent has the obligation to act like an adult.

Both kinds of libertarians agree on the first half of that: to the extent the public suffers the existence of the state, its functions should be limited to providing law and order and should by no means be extended to how free individuals, singly and in the organizations great and small that they form, choose to direct their peaceful, productive energies. But the thin libertarians stop there. They hold that since liberty is a political project, confined to arguments about the proper scope of government, further discussions of social issues is outside the scope of libertarianism. Thick libertarians proceed as if the private choices of free individuals in society are important enough to discuss. They're willing to consider that private virtues like honor, decency, respect, and professionalism et al constitute the sinew that binds the skeleton of simple rule of law together. 

What can EE offer the debate? Good question. One of the troubles I have with the term "marketplace of ideas" is that it omits (or tends to omit) a tremendously important coordination mechanism: price. The sticker price for my ideas here on this blog is zero. All it costs you to read this post is some time, attention, and maybe a slight willingness to soften your priors a little. The goods on offer here in this marketplace of ideas are non-rival, non-excludable, and more to the point, (effectively) endlessly recombinable. As long as everyone has an equal opportunity to contribute to the discussion, fairness rules. Of course, this does not imply that everyone's contribution will be equally useful or compelling, but I urge you to refrain from using ex post judgement to critique ex ante institutional arrangements.

The natural exchange of ideas and talents between thick and thin libertarians is for the thin folks to direct their message towards the sovereign and for the thick folks to direct their message towards constituents. If I were a man of system arranging the men and women of the liberty movement as if arranging pieces upon a chess-board, that's what I'd do (ha ha, can you even imagine?). Unfortunately, any trade needs both offer and acceptance, and I'm not even sure there's been a proper offer tendered.

Marsellus Wallace, to Butch Coolidge: "The night of the fight, you may feel a slight sting. That's pride fucking with you. Fuck pride. Pride only hurts, it never helps."

Coase didn't make it perfectly clear in The Problem of Social Cost that sometimes the bargaining set is null, that sometimes pride does get in the way of what would otherwise be a fruitful transaction. If you find yourself teaching the Coase Theorem any time soon, please consider some brief classroom discussion on this too often neglected point.

The APEEmath vol 1: Giberson and Kiesling Unbundle the Grid

The Association of Private Enterprise Education concluded its annual meeting this past Tuesday. I attended a generous abundance of fine panels, rubbed elbows with a generous abundance of fine scholars, and enjoyed a generous abundance of excruciating back pain. My back has largely recovered, so I find my mental satchel full of puzzles, questions, conundrums, pleas for clarification, and challenges to much of what I witnessed in (relative) peace and quiet. So for the next few days, I'll be sifting through the aftermath of APEE 2014. The APEEmath, if you will forgive me some bad dad humor.

And since it is often advised to start at the beginning, let's start with Session M1. The session I attended featured Michael Giberson and Lynne Kiesling, our friends at Knowledge Problem. Combined, their presentations told a story that I think we've all felt shimmering in the air since the 70s: decentralized energy production is a matter of when, not if. However, it is far less sure that energy distribution faces a similar threat, or if it does, it's certainly not clear that the grid will share the same time schedule as the power plants.

Please indulge me a brief digression here. My firsthand experience is in Naval nuclear propulsion. There are three and a half distinct divisions in the nuclear side of a submarine's engineering department (the Sailors charged with monitoring and maintenance of primary plant chemistry are, strictly speaking, part of Machinery Division, but they boast specialized skills and training that set them apart from the ordinary knuckle-draggers; they are the half division, but the ones I know personally also count among some of the finest men it has been my honor to have ever met, so don't let this imply that I think any less of them). We, the gaunt twidgets, the reactor operators, pasty from lack of sunlight, fine-and-brittle-boned from the many months spent hunched over Byzantine mazes of electronic components, yapping discontentedly in our odd tongue of resistance, capacitance, induction, and reduction—our eyes filled with cascading arcs of ionizing radiation detection, our ears stuffed with the harsh syllables of a routine critical checkoff, our sinuses subverted by the penetrating aroma of the loved-and-hated chemical that unceremoniously replaces the roiling breath and fart of 160 of our fellow shipmates into something vaguely resembling a breathable atmosphere, it is we who wrangle, harness, command the broken soul wrought from the enraged heart of uranium-23X, bending its fury to the diligent task of whispering life and vigor into the cold, coiled copper snaking arterial ardor up and down the stubborn corpse of the underwater pig, grunting and snuffling beneath the dismissive swell of an indifferent father ocean. The Electrical Division is responsible for shipboard load distribution and maintenance of generators, batteries, and the interface of the AC and DC portions of the network. Why do I mention this? Well, in the mind of a Sailor serving in an engineering department (again, many apologies to A-gang for not including you in my reindeer games), there is a perfectly natural cleavage between the generation and distribution functions in the quest to turn fuel and fire into warmth and comfort.

So here's the thing: rooftop solar is becoming not only more technologically efficient, but more economically efficient. This implies that legacy utility plants are rapidly advancing towards obsolescence. They are soon to be the twinkling phylacteries in which dwell the souls of the dear departed wizards of Thomas Edison's coven. But the grid? The grid is a thing alive, pulsing with the lifeblood of shared electricity. When its vitality can be sustained by bough and twig alone, the Big Capital power plants (with all the attendant costs) will end up clinging, vestigial, to the undercarriage of a sprightly distribution network. They are and shall be an unseemly legacy cost that threaten to burden a critically important component of ye moderne œconomy.

So why not split the utilities along their production and distribution seams? Might we get a jump on the inevitable transitional gains trap by half a league onward? Sure, there might be some negotiation costs for the intermediate bits, but determining who gets the line item for a decoupling station seems a lot more tractable (from the point of view of the end customer) than worrying about how to resolve the inevitable problem of how to keep rooftop solar providers from getting sucked under the waves when the pod of power rorquals go belly up and burst under the unforgiving gaze of the sun.

Power generation is not euvoluntary. Neither is power distribution. Keeping them bundled multiplies the risk without providing much extra reward. It's time to cut the cord, people.

Christopher Walken's Lesser Known Brother, Jay

From the Twitter, an interesting conversation between EE peeps Pamela J Stubbart, Adam Gurri, and Zac Gochenour, plus commentary from "Dr. Phil of Economics", the content of which can be found here. Again, the threading is a little hard to follow, so let's see if I can parse.

Peej: Aggressive but genuinely competent jaywalking still has pretty serious negative externalities because other pedestrians are taking cues from you.

Zac/Dr. Phil: That's an abuse of the language of economics. You're talking about information transmission, and negative externalities are what happens when a third party incurs costs of a transaction of which they are not a part. This doesn't count, since the decision of the other pedestrians in your example still have to make the rational decision whether or not to jaywalk.

Peej: Rational? What are you talking about? I'm talking Kahneman here, not Demsetz. Try to keep up, boys.

Adam: lol, pwned. But it's still hard to call that an externality. Even if the mental processing is not de facto rationally conscious, it's not like the classical examples where avoidance costs come from outside sources. Think of Coase's train sparks and cornfields. There's no farmer mulling over a private calculus, there are burning crops. The two just aren't equivalent.

Peej: Theory of mind much, Adam? What happens in your head is as "real" as what happens in physical space. [SLW note: Pamela didn't actually press this point, this is more me furthering the argument for didactic purposes]

Dr. Phil/Adam: Information transmission is how civilizations happen. We are human thanks to our habit of mimicry.

Peej: So you admit I'm right. That's what I thought.

And then she took a picture of herself in a victory pose.

What do you think? Does jaywalking impose mimicry costs on others? In a court of law, you wouldn't be able to make a case of actual physical coercion, but what of a sort of soft coercion centered on a weakness of will or overconfidence or whatever other cognitive bias might influence a novice (or a child) jaywalker-to-be?

Can we extend the example? Does pro wrestling bear some responsibility for idiot kids breaking their necks in the backyard when they try to recreate Wrestlemania XXIX with their idiot buddies? Do savvy day traders bear responsibility for overenthusiastic amateurs' dabblings in uncovered short sales? I don't mean in a legal sense, I mean in a pedestrian heuristic sense.

I think the ol' "I learned it by watching you, dad" cry is commonly brought to bear when convenient. Parents will storm the studios of MTV when their kids parrot what they see on Jackass (can you tell how long it's been since I've watched TV regularly?), but they're more likely to do the Justification Tango when it's their own behavior that might be suspect. Construal Level Theory strikes again.

It's also very interesting to revisit Munger's norms arguments in light of jaywalking. Nobody, and I mean but nobody jaywalks in Seattle. This is not true in Boston. Why? Is it more euvoluntary in Beantown? How did it get that way? Curious stuff, people.

Networks, Violence, Externalities, and Denominators: an Analytical Puzzle

Something recently occurred to me as I continue to slouch towards a finished dissertation. The modern, tech-savvy economist's eyes will twinkle as she tells you tales of network externalities, of how being embedded in ever vaster webs of personal connections and voluntary associations yields gloriously cheap transmission. The world is edging ever closer to the caricature of the Coase Theorem, where near-zero transaction costs imply a wildflowering of voluntary, personal conflict resolution. This could even be one way to (incorrectly, since it misapprehends his claim) stand athwart Tyler Cowen's Great Stagnation thesis. More choice today includes more choice over whom to associate with. As a quick example, I am Facebook friends with Bill Leeb, Martin Atkins, cEvin Key, mc chris, and a smattering of other minor celebrities.

Hell, I blog here with Michael f'-omg-ing Munger! I have scores of friends I've never met in person, and thanks to knock-on effects of ever-denser social networks, I can solicit communication freely from the leading lights of my larger community. If you're old enough to remember typewritten post and wooden cabinets filled with 3x5 cards at the library, you'll recognize what a boon this is.

The unsung downshot of this is that even as GDP figures from the 1970s are probably drastically understated when piled next to today's figures, so are the per-capita violent crime statistics. The dis-utility of a violent crime event spreads wider and faster than it did 40 years ago.

And that's a feature, not a bug! It's good that murders, robberies, and assaults incidentally harm more folks per incident. Why? Because it gives folks a greater personal incentive to re-arrange the parameters of the crime and punishment game, particularly detection. By now, I'm sure you've heard tales of intrepid Internet sleuths hunting down bullies, thugs, hit-and-run drivers, and the like and hauling them to justice. The SPNE of this is... less crime.

So fleshy, broad networks are good not just because of the direct upside benefits, but perhaps also because they help mitigate downside risks. This makes them super-euvoluntary. This probably also suggests that to really reap the benefits of downside risk mitigation, legislators should avoid hobbling Web community-based police work.

At any rate, for those of us who work frequently with panel data on violent crime, I'd love to hear some ideas on how to attempt to control for this effect. It's something more than just time fixed effects, but I'm worried that it'll inevitably get captured as such. Maybe a natural experiment discontinuity regression around an ISP outage or something? Hm. It might be worth thinking about a little more.

Clarifying BATNA

Art, Betty, and Carl generate a "natural" externality by the joint product of the exchange between Art and that saucy so-and-so Betty plus the grumpy discomfort of Carl. It's a negative externality enjoined by free agents making choices informed by their institutional settings and the relative prices they face. That's just fancy economist talk for "nobody's making anybody do anything." There's no coercion here, just the misfortune of being in the wrong place at the wrong time.



That's what Coase wrote about in his JEL piece, "The Problem of Social Cost," these many years ago. Coase motivated the discussion with trains and corn, and notably without other folks fiddling with the underlying conditions that produce the disagreements wrought by errant potato chip gnashing or stray sparks from spinning steel. Contrast this with the notion of fiscal externalities, where the costs borne by the Carl analog exist because of a Choice made by the Public. Imagine that the chips upon which Betty blissfully binges aren't eaten in a university classroom, but in a prison classroom. A prison classroom where Carl is a mandatory student. Things change a bit. Carl can now claim some moral legitimacy when he takes that bag and stuffs it... somewhere uncomfortable.

The canon example of fiscal externalities used to justify coercive policy is like this: hospitals cannot turn anyone away for ER care, but they must cover their costs, so people who come though the doors after horrific motorcycle accidents may end up getting their care on the taxpayers' dime. This externality justifies the precautionary measure of mandatory crash helmet usage. If I'm paying for your recklessness, I have some say in how the downside risk is mitigated. Ditto for mortgage securities. The implicit bailout is used to justify the paternalistic policy. Questioning the bailout is madness, of course. What are you, a monster? Do you want to witness the chaos of bank failure? Do you want to let that head injury just bleed out?

Ignore the quasi-organized question begging implied by the invocation of fiscal externalities and consider for a moment the BATNA version of this phenomenon. I'm not yet sure what to call it, but in some instances, the alternative to striking a deal is defined not by the state of "nature" (by which I mean in the absence of legislative interference), but by some statute or other. A few days ago, I noted that the BATNA to mandatory schooling isn't idleness and poverty, but juvenile detention. The BATNA for registering with the Selective Service is prison.

And so on.

But should this distinction alter our interpretation of euvoluntary exchange concerns? Should it influence our analysis? I think so. When we make clear the distinction between natural and fiscal externalities, it exposes the circular logic that underpins some calls for paternalistic policy. Similarly, by identifying BATNA-by-fiat, we can more carefully parse arguments that underpin calls for subsidies. If it is legislators' pens that force worse alternatives onto constituents in the event they fail to strike a bargain, it might be wise to revisit the source of the non-euvoluntarity. To re-examine old justifications for policy nostrums, if you will.

Is Ronald Coase a Euvoluntaryist? (Part 2 of 2)

In my last post, I discussed the advantages of consolidating legion euvoluntary trades into fewer voluntary exchanges within a firm with the end of eliminating wasteful bargaining sessions. In this post, I'd like to broaden the idea of bargaining consolidation to transactions that happen outside the firm. In our quest here at EE to envision a more euvoluntary world, we now consider whether Coase's other watershed paper, The Problem of Social Cost points us towards the euvoluntary end of the spectrum.

Many of you will be familiar with this paper already. It boasts close to 20,000 citations in the academic literature, probably hundreds of thousands more in graduate and undergraduate term papers. Despite being one of the cornerstones of modern economics, it suffers misinterpretations similar to distortions of Say's Law. The Problem of Social Cost is the origin of the famous "Coase Theorem". My best stab at describing Coase's arguments are as follows: because harm is reciprocal, part of the calculus for the assignment of rights over relief should include lowest-cost determination. Coase, with his background in law, motivated his ideas using vivid case examples. When I explain this to undergraduates, I like to use examples from my time in the Navy. Undergrads living in dorms can probably better relate to barracks life than to apothecaries or cattle rights of way.

My favorite examples are ones where no rights are established ex ante. Recall that emergent law and custom is vested in precedent. If you leave your coat draped across the back of a restaurant chair, we know from prior experience that this means we have a temporary claim over that seat. Quite a lot of civil interaction is suffused with tacit rules so long as the interactions are routine and well-ordered. We know not to jump the line at the grocery store, we know to hold the door open for pregnant women, and we know to take our hats off in church. Things change a little bit once we step out of a world filled with well-established priors. When I joined the Navy back in tumpety-tumpety-tumpety-three, I had fewer references for acceptable behavior in certain contexts than when I was a snotty high school kid. So, evidently, did some of the gentlemen with whom I shared living quarters. I will spare you the less-than-savory details, but I will say that there existed no well-established property rights over the condition of the shower drains nor were there rigorous norms about the range of acceptable activities conducted in their proximity. Note the reciprocal problem: if it's my own shower, I have full exclusion rights, so I'm free to obstruct the drain with whatever debris as pleases me. Note also the undefined property right: in some nebulous sense, the shower is "owned" by the US Navy, an intangible concept to junior enlisted personnel until it wears a uniform bearing an extra chevron or two. In those A-school barracks, there was no regular senior enlisted oversight the way there was in Boot Camp, so many of the young men took rather unfortunate liberties with some of the facilities. Coase might argue that the remedy for this state of affairs would be to synthesize a de jure owner to resolve the problem rather than having plaintiffs individually investigate and wrangle bargains haphazardly. In the case of befouled drains in open bay barracks, a novel remedy was public, collective shaming. Highly visible signs warning of the consequences of untoward showertime activities were posted throughout the building in public areas. The offending behavior promptly ceased.

The comfortable junction of Coase and the principles of euvoluntary exchange can be found in the first two conditions, conventional ownership and conventional capacity to exchange. Coase noted that when these elements exist and are well-defined, it's much easier to correct violations of the fourth condition, uncompensated externalities. Broadening the scope of ownership might plausibly increase the euvoluntary opportunities for trade and dispute resolution. A Coasean world tends towards greater euvoluntarity. A world that strips property rights from sovereign individuals (or groups, as keenly noted in the research projects of, eg, Elinor Ostrom) restricts the universe of peaceful collaboration and vests dispute resolution in the hands of third parties; parties who might plausibly be better employed in value-creating work elsewhere.

Questions for consideration:

• The Coase Theorem is often caricatured as, "as long as transaction costs are zero, it doesn't matter who owns the property right, as the parties can bargain to the efficient outcome." What is wrong with this interpretation?
• Empirically, how big do you reckon is the deadweight loss of poorly or inappropriately assigned property rights? Whose responsibility is it to correct errors in property rights assignment?
• Under what conditions are property rights undesirable? In what ways might the Coase Theorem lead us away from euvoluntary outcomes?
• The discovery process is an important aspect of rights assignment, but discovery is costly. Under what conditions might it be wise to revisit traditional rights assignment schema to update for changing states of the world? Think patent and copyright norms, tort procedures or liability rules. How might Coasean insights affect the criminal code?