The Problem of Social Cost

I recently printed the essay "the problem of social cost" by Ronald Coase out for a more detailed study later. Here is a link to that essay:

http://enviro.colorado.edu/class/8535/Coase.pdf

Coase defines social cost as actions having "harmful effects on others". I would like add to this social benefits. By this benefits I mean issues like piece, trust, healthy living conditions(which adds up to examples used by coase) and the like. These can also be seen as cost (or efforts) of mainting an orderly society. Sometimes these are actually opportunity costs or losses. Since abstaining from a profitable, but socially harmful action is kind of an opportunity loss - or this is what it looks like. This would touch on the libertarian idea of distinguishing between rights violations and immoral action as well.

So I would like to hear other opinions on the issues raised. It is possible that we need to subdivide the subject in order to avoid derailing the discussion.

  

 

 

His essay is interesting because of his critique to Pigouvian standard theory and the new approach he purposes.
Anyway, Austrians disagree with him. The goal of Coase's analysis is to maximize the total output, trying to find the best alternative for that. In that way, that involves interpersonal utility comparisons, so that approach isn't correct in an Austrian view, besides other reasons.

There are some articles that deal with this issue:

An Austrian Theory of Environmental Economics: http://www.mises.org/story/1760 

Coase, Pigou and Environmental Rights: http://www.environnement-propriete.org/english/documentation/doc/Coase_Pigou_and_Environmental_Rights_Bruce_Yandle.pdf

Chasing Phantoms in a Hollow Defense of Coase: http://www.mises.org/journals/scholar/Cordato3.pdf

Thanks for the input

martinf:

His essay is interesting because of his critique to Pigouvian standard theory and the new approach he purposes.
Anyway, Austrians disagree with him. The goal of Coase's analysis is to maximize the total output, trying to find the best alternative for that. In that way, that involves interpersonal utility comparisons, so that approach isn't correct in an Austrian view, besides other reasons.

So one needs to consider the approach of people in that matter. Coase looks from a utilitarian perspective on the matter, while Austrians would look at it from a subjectivist view.

To take this debate further, I first would like to clarify whether there is a value attached to a healthy environment, peace, good social relation and the like. I would also say that while there can be social cost there would be also social benefits and the like. 

 

" I first would like to clarify whether there is a value attached to a healthy environment, peace, good social relation and the like."

I was boarding a plane one time, looking for a seat to sit in. I just happened to have the hat on that is in my avatar to the left. As I was walking down the isle I spied an open seat next to a Rabbi. He had on traditional black garb and one of those black felt hats. I thought I'd try to get a 'rise' out of him as I was taking the seat. I said, "Hey, I'll trade you hats!"

I could tell right away that I wouldn't get much of a 'rise' as he turned his dour face from the tiny black book he was scribbling in to look directly at me...for about 1/2 a second. He began to scribble again and muttered to me, "Each must wear his own hat."  I sat next to him for the duration of the flight which was about 3 hours. Neither of us said another word.....

 

So, YES, we each - individually - attach value to all things. No other person or groups of persons can correctly attach value for another.

 

G8R HED:

So, YES, we each - individually - attach value to all things. No other person or groups of persons can correctly attach value for another.

I fail to see how this example is aplicable to the problem in question. It is possible for one person to correctly attach value for another. In fact I hope most parents are good with this skill, when it comes to their children. There is also more value for people in living in a game reserve than on a toxic waste dump. Other examples can be given.

"It is possible for one person to correctly attach value for another. In fact I hope most parents are good with this skill, when it comes to their children"

HOW? A parent may attach value to a child eating brussel sprouts, but the child may attach and entirely different value. Granted, at some point the child MAY attach a value equal to that of the parent, but ultimately the child decides at any particular time what that value is.

 

"There is also more value for people in living in a game reserve than on a toxic waste dump"

HOW? For you and me that statement MAY be true....but it may not. You are only assuming so. Again, one person may place more or less value on one or the other. Some people CHOOSE to live in a toxic waste dump. I see one example every time I drive out to the farm - a veritable junkyard of toxicity of the landowner's own creation. A meth lab in one's apartment would be another example. Those people chose to live there rather than a game reserve.

 

"I fail to see how this example is aplicable to the problem in question"

It is simply that the Rabbi attached a value to his hat greater than his assesed value of owning my hat.

 

Well, I think the best one can do is correctly guess the value seen by other, given he has enough information to do that. Parents in fact have come to know their children through time and experience and therefor can often give an pretty good esitmation of the values seen by the kids to things. But they don't get it always right. They still go from their average experience and so sometimes get it wrong when trying to satisfie the child. I also sincerely doubt whether a person himself values the same thing equally every given time, just like in physics their is no exactly repeatable experiment simply because the time is different. Yet, one can always make very accurate guesses with minimal fault having the right information. An exact guess I think is not possible to give, since one probably won't be able to aquire all the information needed to do that. Since values given to things by a person also depends on emotions and thoughts he's having during the time of valuing, the himself is the only one who can give an exact value. Even more, a bystander can only see the current state of the person but it can be that the value also consists of something happened in the past. Multiple experience with the same thing is what makes parents good guessing the values given by their children. As the child evolves also his values change since he starts add more aspects and this is where parents often make their mistakes. The first time a child adds some new aspect to the value is the time when the parent probably gets the value wrong, no matter how little the change it's till a change. Can one really have all the information required to tell the value seen by another person?

Don Roberto:

....Parents in fact have come to know their children through time and experience and therefor can often give an pretty good esitmation of the values seen by the kids to things. But they don't get it always right. They still go from their average experience and so sometimes get it wrong when trying to satisfie the child. I also sincerely doubt whether a person himself values the same thing equally every given time, just like in physics their is no exactly repeatable experiment simply because the time is different. Yet, one can always make very accurate guesses with minimal fault having the right information. An exact guess I think is not possible to give, since one probably won't be able to aquire all the information needed to do that....

Now, in the beginning parents have to do more or less all decisions for their kids. What they eat, what they wear, when they sleep. With time they learn to make their own decisions, while they actually are following the templates of their upbringing. Furthermore valueing an action or a good is based on perception and expectation from the effects this action/good is going to have. The impact of an action/good i.e. picking a the design of a hat may be very limited, while a toxic waste dump may have far stretching impact on whole regions and people. The same accounts for far issues like social peace, attitudes, values and the like. So I think one should give the question of broad based social cost/benefits/value a closer look. And see how they fit into or relate to pure individual/subjective valuations of single goods. Another question of course is merely of a political nature and this would be how we should deal with benefits/costs that exceed the private/individual framework and become a more common or social issue.

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I think that the mythology about the so-called "Coase Theorem" has diverted attention away from the actual messages in "Social Cost".  I have a paper coming out in the Cato Journal this fall called "The Real Coase Theorems" that attempts to set the record straight on what Coase actually said in "Social Cost."  There is much work that need to be done in evaluating Coase's ideas in this classic essay.  But first, we need to separate his ideas from ideas that have been attributed to him by others. 

Actually I used Coase Social Cost as an example. Personally I would like to examine two problems or phenomena and their implications:

1. Social cost resulting from human activities that are not of a contractual nature or a directly measurable aggression/coercion/disadvantage to other people. That environmental stuff would be an example, but there are other possibilities, too.
2. Social benefits, meaning the advantages people enjoy from a properly functioning society and environment. This can be seen as the locality bonus one may have, due to living in a country were social and political relations are in tact.

Another question would be how (and whether) people should be penalized, charged or rewarded for actions relating to social cost or benefits.