fatvegan

I've written about Coase Theorem before. But I had another thought about it. The idea of the theorem is that it doesn't matter who gets the right to decide what happens to things (or who gets the property rights), the outcome should be the same. Theoretically, the two (or more parties) will negotiate and the optimal use of the resource will be figured out. The benefits of using the resource as well as it can be used mean that everyone can have a bit more stuff. There are plenty of issues with it - unequal incomes, difficulty monetising the "vibe" of things that people enjoy, and the fact that people don't really negotiate with each other that much. But even so it does have some sense to it and it is used a lot by governments to justify their decisions.

The government will use it to say that it doesn't matter if they give land rights to indigenous people or mining companies. If indigenous people get it the mining company will just pay them to leave. If the mining company gets it they will make people leave without paying them. The second option might not seem "fair", but of course, in economics there is No Such Thing as fair. And even though it isn't fair the economists are happy because the land really should be used for mining because that is clearly its most productive use. Or at least that is the reasoning.

I think that is all quite silly, however even if you think it's reasonable I don't think you can be indifferent between who gets the property rights in the first place. The government largely assigns property rights arbitrarily. There is really no way around this, which I suppose is one of the dumb things about property in the first place. When the government assigns rights to one party, it is effectively imposing costs on the other party. They're either going to have to forgo a whole lot of benefit or buy that benefit from the other party. Often those costs are enormous, as in the case of communities moving to make way for big developers.

I'd suggest that those costs (which should of the same magnitude for whichever party doesn't get the property rights) are more difficult to absorb for the less organised party. Even if you think they can both negotiate equally, the more organised party will be better able to insure themselves against large, uncertain costs. Mining companies do it by distributing shares amongst a large number of people. Indigenous communities have to just get up and move.

It's hard to imagine an aboriginal community insuring itself against the possibility of losing a court case which forces them to move to another town. It's very easy to imagine a mining company insuring itself against the possibility of losing a court case which prevents them from mining somewhere they hoped to mine.

The ease with which a mining company can adapt to change makes the cost of that uncertainty or the arbitrariness of the government's/court's decision far more manageable. It is also a purely monetary cost which is easier to distribute over time or amongst others.

So I would suggest that in a disagreement between two parties, the property rights should always be given to the party least able to protect itself from the costs of not having those rights. According to Coase, this shouldn't affect ease of development at all. The mining companies can still buy the right to mine from the little guy if it's really the most productive use of the land. But by biasing your decisions towards the weaker party society can benefit from better risk distribution which comes entirely for free.