Environment, Law, and History: RIP Ronald Coase:
Coase's 1960 article, "The Problem of Social Cost", the most-cited law review article of all time, had an immense effect on both the study of environmental law and its design, providing intellectual backing for two prominent trends in environmental law of the last few decades: market-based policies and cost-benefit analysis. As Cass Sunstein explains:His target was the great British economist Arthur Cecil Pigou, who contended that if a polluter is emitting smoke, and thus causing injury, the best response is to make the factory owner pay for the injury or to impose a corrective tax.Coase said Pigou failed to see “the reciprocal nature of the problem.” Suppose that a very noisy factory is causing legal injury to a doctor operating next door. Under Pigou’s approach, the factory should be required to pay damages to the doctor. But Coase pointed out that we could also make the doctor bear the cost. His central insight was that if people can bargain with one another, and if it isn’t costly for them to do so, it just doesn’t matter who is required to pay: People will negotiate their way to the efficient solution. This is the Coase theorem in a nutshell.'via Blog this'