fatvegan

In arguments about whether there should be more or less government intervention, Ronald Coase's theory will often be brought up. He says that if people can negotiate with no transaction costs, then it doesn't matter who owns the property rights to something. Here, property rights are defined broadly and include the right to play music loudly at night or the right to have your dog poo on someone else's lawn. The idea is that whoever wants something the most (or, rather, is willing to pay the most) will get what they want.

The implication that you don't need government running around regulating things because people will negotiate with each other. If the aborigines really don't want the mining company to mine their land, they'll just pay the mining company not to do it. If they can't raise the money to do that then obviously it is best for society if the land is mined.

I've made a point much like this one before, but I reckon that governments are the Coase Theorem at work. We need someone to manage the property rights (police, legal system) and we need a practical method for negotiating outcomes with thousands of other agents (voting). Sure, it's a pretty blunt instrument, but it strikes me that a lot of the stuff (like information markets) that radical economists suggest should replace governments would actually end up looking a lot like governments. Regulation is like the collective bargaining of the Coase world. I'm inclined to agree that often preferences are too aggregated and regulation could be reduced, but is anyone seriously going to suggest that every individual negotiates independently with every other individual who has an impact on their life. Given that most of the individuals on the planet will have some sort of impact on my life, that doesn't seem very practical.

Can we look at the government as a monolithic firm offering a lot of the services, but driven by the power motive rather than the profit motive? Is there are reason the interests of management will be better aligned with those of customers in either type of firm? Pursuit of short-term power would seem to result in the same inconsistencies as the pursuit of short-term profit.

Perhaps there are problems with the size of the government, but I don't think the economies of scale and scope are convincingly outweighed by the costs of monolithic-ness. I personally think our governments do a pretty good job on most counts. I think paying 30% of GDP in tax is an absolute bargain for all the stuff we get in return. I suspect others would disagree. I do wonder if a lot of these arguments come down to whether you think governments do a good or a bad job. It's a very difficult issue to resolve. As usual, we all look at the same data and use it to support opposing ideologies.