Conclusion
Non-welfarist arguments loomed large in debates over the Coase theorem in the 1970s, particularly within the literature of environmental economics. The invocation of such arguments is unusual in and of itself, but even more so - and perhaps singularly unique - given what the Coase theorem tells us.
The Coase theorem is a proposition in economic logic, a statement with no direct implications for how to go about dealing with externality issues. It says, simply, that under assumed set of conditions A, result B will follow.[110] In this respect, it is no different than the Fundamental Theorems of Welfare Economics. But this is not how it was interpreted by many who encountered it. Instead, it was seen as a potential prescription for externality, including environmental, policy.Understood as a policy prescription, the Coase theorem was thought by some to legitimate a system that could make “victims” liable for harm and allow imperfect market processes to determine the level of environmental damage. Such outcomes ran afoul of certain values that could only be brought into play via non-welfarist arguments. Curiously, though, these arguments were not used to build a case for a particular assignment of rights or liability in a Coase theorem world - that is, to suggest that polluters should not be given the right to pollute or that they should be made liable for damages. Instead, they were used to criticize the theorem itself. As Randall pointed out in 1974, “many of those who have worked so hard to pierce the Coasian balloon have invested that effort mainly because they found the policy implications of the Coase Theorem rather offensive” (1974, p. 35).
There can be no question that some of those predisposed to markets found in the theorem a justification for private or market-based solutions to externality problems and even a reason for believing that the status quo can be deemed efficient - both of these obviating the need for direct State action via Pigovian instruments that would (further) reduce pollution. But if one is to pretend that the Coase theorem is actually applicable to environmental problems, the argument cuts both ways.
One of the many ironies found in the Coase theorem debate is that the theorem, by ensuring efficiency, leaves the door wide open for non-welfarist criteria - indeed, almost demands them as a method of choosing among alternative measures for dealing with external effects in a world of zero transaction costs. There is no need to worry about sacrificing efficiency when indulging one’s non-welfarist values.[111]The implications of this argument are striking: it makes the Coase theorem at least as strong a weapon in the hands of those concerned with victim liability and environmental damage as in the hands of those concerned with efficiency or the virtues of markets. But rather than employing this line of argument, these authors instead attempted to discredit the theorem. One is left to wonder whether the fear that the theorem’s efficiency and invariance claims could be used to justify granting polluters the right to pollute in unrestricted fashion may have blinded many environmental economists to this insight. In commenting on the raging debate over the theorem in 1974, Randall said that: “At almost every stage in the debate which sprang up around ‘The Problem of Social Cost,’ it is unclear whether theory fathered policy viewpoints or vice-versa” (1974, p. 36). Our analysis of the non-welfarist attacks on the Coase theorem suggests that “vice-versa” is at least part of the answer to the question.