Wednesday, March 18, 2009

Coase nonsense

Freakonomics has another post on the Coase theorem and its apparent failure to describe a real-world outcome. This time it's that liquor store right off the Strip in Vegas amongst the towering hotel-casinos. This isn't the first time they've gone down this path; there's a link in their post of more anti-Coase examples.

Can someone clarify for me why it is that an opportunity for increased profits due to a transfer of property rights is a failure of the Coase Theorem? Of the fundamental lessons from Micro principles is that value is subjective; it's easiest to describe examples of the Coase Theorem using simple dollar figures, but that's not the whole story. It can't be conceivable that the owner of the liquor company would value sticking it to the property owner over accepting a check from him? I don't get it.

The irony that the main economist on the site, Steve Levitt, is at the University of Chicago isn't lost on me either.

1 comment:

Justin M Ross said...

Seriously sloppy thinking here. Even if it were legal to sell my kidney, I probably would wind up not doing it at market price (estimated to be $40,000). That does not represent a failure of the Coase Theorem either for exactly the same reasons.