Thoughts on Hausman's Critique of CVM

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August 11, 2008


David Zetland said...

I deleted the comment above because it was BOTH off-topic (sustainable growth) and too long. Here's a short version:

“This position statement acknowledges that the human economy is contained within, and dependent on, a finite and depletable natural environment,” said Environmental Commission member Heather Reynolds. “Ever-increasing economic growth ultimately leads to resource consumption and waste production at rates greater than can be sustained by nature.” A steady state economy for the U.S. will depend in no small part on the efforts made by communities across the nation to achieve sustainable local economies. The first step is awareness and acceptance of the concepts, both of which it is hoped that the position statement will foster.

and a link

Dan Cole said...

Only someone who has not read 'The Problem of Social Cost,' but has read about the 'Coase theorem', would assert that Coase argued in favor of simply assigning property rights and allowing bargaining to occur. You should actually read what Coase wrote: it's interesting, well-written, not nearly as simplistic as it is usually portrayed (as in your blog post), and absolultely convincing.

David Zetland said...

Dan -- I've read it, which surely what you're implying. :)

Given that it's even more convincing than my post, only people who disagree with my post should read it, right? Good.

dan cole said...

Well then, David, surely you know that (a) property rights can be expensive to assign, (b) transaction costs can impede efficient bargaining over property rights. Thus, it's not just a matter of assinging rights and allowing parties to bargain. As Coase takes pains to note, the initial allocation can be all important in conditions of positive transaction costs that could impede efficient reallocations.

In the case you're discussing, who held the property rights, the power plants or the environmental groups? It's not at all easy to say. All we know is that the parties seem to have contracted their way to a solution that satisfied them both. From that we can conclude that transaction costs were not so high as to prevent a seemingly efficient allocation of resourcs. But whether that allocation is socially efficient remains questionable. There may be other affected individuals who were not party to the agreement between the environmental groups and the power plants; and we do not know what values those individuals place on the affects.

Don said...

Ah, the joy of social science! What did Coase say about moving forward or not with incomplete information about social efficiency? Gawd, must we freeze until certain that all affected individuals are party to agreements?

Dan Cole said...


Of course we don't have to "freeze until certain that all affected individuals are party to agreements." But we shouldn't blithely assume that the result of the allocation/reallocation is socially efficient. Nor should we attribute to Coase the claim (which Coase never made) that all we need to do to attain socially efficient outcomes is establish property rights and institute freedom of contract.


TokyoTom said...

I saw a report on the Wisconsin agreement too, and think that environmentalists need to do more deals like that. For example, I think there are deals to be done on ANWR and OCS, and on carbon taxes that would channel a portion of revenues back to states that otherwise stand to lose coal royalty/severance tax revenue.

I'm a bit chary on the aspects that call for more government mandates; the Wisconsin deal calls for the utility to support legislation that would require a higher share of renewables, for example, and the Sierra Club is also supporting Pickens' play for more solar power subsidies

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