Coase had proposed an interesting Theorem. One way, I
believe, to state it is:
In the case of an open and free market, independent of
Government controls, free of transaction costs, an optimal distribution of "property"
can be achieved directly or as a result of litigation.
Take the classic example of the railroad company and the
farmer. The railroad company wants to have the cheapest costs to operate and
the farmer wants to largest piece of land to cultivate. However in certain
parts of the country at certain times of the year the train may emit sparks
which in turn may result in a fire and burn down the farmers crops. The
railroad has been granted an easement for the tracks while the farmer outright
owns the land. So how shall we remedy this problem.
For Coase it is simply to let the farmer sue the railroad
company at no cost. Thus the cost of the lost crops are mitigated by a payment
from the railroad with no further intermediation. The costs are cleared locally
and on a case by case basis.
A second approach is to have the Government come in with
regulations and mandate that all railroads and farmers adhere to its rules. However,
adhering to the rules may have significant externalities. All railroads must
incur substantial overall costs, albeit forgoing any liabilities, and all
farmers must lose putatively large acreages of useful growing land. The rules
have substantial costs for all, not just for the cases where a problem may
arise. Most importantly with Government mandated regulations, the costs are
then imposed on everyone and the actions are taken whether they would be
required or not. That is every railroad track, no matter on farmland or not, in
summer or winter must adhere to the rules and bear the costs. The costs in turn
are handed down to consumers. The benefits may accrue to the farmer be the
farmer also will see costs resulting from increases in bringing products to
market. Ultimately, however, each consumer will bear the burden.
Now consider a second issue, that of rights. The Founders
were imbued with the construct of Natural Rights and the Constitution
immortalizes these rights as part of the Bill of Rights. Any denial of any of
these rights is looked upon very severely and Government has no open book
options to seek baseless reasons to deny them. Thus a right of free speech, of
the press, of assembly, of religion, to bear arms, search and seizure, trial by
jury and a sacred part of our very existence as a people. Any attempt to deny
them is a material breach of the duties of any Governmental individual.
Now add to this conversation the issue of the current COVID-19
virus, the virus. From a Coasian perspective one should allow individuals to
litigate for damages. Namely if one is infected and one refuses to adhere to an
appropriate protocol, then the other "individuals" so infected should
be able to sue for damages at no transaction costs. Is this even possible?
Frankly, yes. One can track the RNA virus as it mutates and identify the
initial transmitter.
Unlike AIDS where people were terrified to do anything about
the Patient Zero, who was well known and continued to infect people until he
finally died, we can remedy this quickly. If someone infects another they are
liable.
In contrast the non-Coasian way is Government regulation.
This is the current heavy fisted manner in which state governments have
suddenly grabbed massive powers, often abrogating fundamental Constitutional
rights, and mandate draconian measures predicated on baseless data, stating, in
an Orwellian manner, that it is "scientific". Ironically, these
autocrats would not know a scientific fact if it landed on their nose, but
alas, perforce of their election, they become imbued with all wisdom and powers.
Perhaps one could assume that by informing the populace of
the danger, informing them how to avoid the danger, and testing to assess the
prevalence, on can rely upon the willingness of most people to adhere to the
precautions and not be overly restricted by draconian methods currently
employed. For example, we tell people to wear seat belts, most do, those who do
not often die in accidents. That is a quasi-Darwinian cleansing. We tell people
not to smoke, those who choose to do so suffer the consequences. We tell people
not to use drugs, for those who do consequences ensue. We tell people not to
become obese, again, consequences and costs. Unfortunately in an externalities
fashion in all of the above, there are costs that society as a who is charged.
We pay for the consequences of obesity, drugs, driving, but we do so knowing
that for almost all of us our freedoms under the Bill of Rights are sustained.
However, under the current circumstances we have had our
rights absconded by politicians and in addition we are bearing an
insurmountable cost. I suspect that there are alternatives to these measures
akin to what we seen in the aforementioned. However we seem to be dominated by
politicians and worse by academics. There are more Professors of this and that
who opine from the security of their ivory tower, continuing to get their
paycheck, spending time opining on the media while the mass of our citizens are
suffering in drastic uncertainty of their very existence.
Is there thus a solution? Clearly in my opinion, not as an
academic but hopefully as an adherent to our Constitution and an entrepreneur,
tell people how to protect themselves, treat them with respect, especially our
politicians who like to call us "knuckleheads" and manage the problem
straightforwardly. Yes, there is a science under all of this, but we must
beware of "false prophets" opining on baseless theories to obtain
their "fifteen minutes".
At all extremes we must defend and preserve our rights under
the Constitution. If we start to give them away we shall never get them back.
Millions have fought to defend them. Millions will die if we lose them.
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