Dueling Non-welfarisms: The Primacy of the Market
Though the thrust of this paper has been on the role of non-welfarist considerations in the attacks made on the Coase theorem, it is by no means clear that non-welfarism was confined to one side of the debate.
On the environmental side, there was, as we have seen, the felt need to reduce environmental damage irrespective of the implications for economic welfare as traditionally defined and to avoid victim liability. But there is also an argument to be made - and the theorem critics frequently made it - that Coase and those who defended the Coase theorem and its potential relevance did so in part, at least, because of an a priori preference for the market as an allocative device.The Coase theorem was (and is) a proposition in economic logic with no direct normative (or “ought”) implications. It does not say that markets are superior to government or should be used in place of it. Indeed, in a world of zero transaction costs, markets and direct state action function equally well in efficiency terms; Coasean and Pigovian remedies are identical in their allocative effects. Yet, that is anything but the picture painted by the critics, who objected to what they perceived as the theorem's normative thrust. Samuels (1974), for example, pointed to what he saw as “the laissez faire, non-interventionist tenor of the usual Coasian discussions” (p. 13), as evidence that the Coase theorem was little more than a “part of the apologetics and theology of the market” (p. 27).[105] As such, he said, “the Coasian analysis is but an attempt to lend the credo of science to normative justification of the market and its fantasies of markets everywhere, and to have everything seen in that light” (p. 11).
Randall described the Coasean position in similar terms: “If there is one normative statement which sums up their position, it is this: The opportunity for trades, of all types, should be maximized,” and private trading is “the solution to any and all perceived economic and/or institutional problems” (1978, p.
7). The role of government here, then, is reduced to “allocative impotence” (Randall 1974, p. 37).[106] We even find this point of view reflected in the textbook literature, with David Pearce, for example, associating the Coasean position with “[a]dvocates of a free market” and “those who are concerned to minimize government activity” (1976, p. 84).[107]The implication of the Coasean analysis, Randall argued, is that “any externalities which are observed to exist unmodified should not be modified"(Randall 1972a, p. 177n.3) - a notion that Samuels (1974, p. 5) rejected on the grounds that it assumes “the propriety of allocations made through market adjustments” and which Randall (1972a, p. 177n.3) labeled a “fallacy” because it ignores the possibility that other corrective actions (e.g., Pigovian instruments) may be less costly than the market solution.[108] Todd Lowry's perspective is perhaps more telling against the welfare implications of Coase theorem's view of the world: “in the context of a relationship composed of only two parties, each of whom is guided only by self-interest, we may not define any action as antisocial behavior since a social reference has been excluded by our definition” (1976, p. 5, emphasis added).
We see in the strong critiques of the theorem leveled by Randall, Samuels, and Mishan the suggestion - essentially confirmed by Mishan in the above quotation (see also Mishan [1971a]) - that these critics put a great deal of stock in the idea that economists were very attracted to the Coase theorem owing to their predisposition toward decentralized market solutions, and in the potential for the continuation, and even increase, of that attachment (Randall 1972a, p. 176; 1974, pp. 37-38). Indeed, Randall felt that no small amount of the support for the Coase theorem and its perceived implications for policy lay in its “combination of neoclassical orthodoxy with [the Coaseans'] fascinating and somewhat heretical habit of visualizing potential trades in situations where trading is illicit or, at least, not customary” (1978, p.
7). One gets the sense from reading these works that there was a perceived need to “demolish” the theorem (to use Randall's term) in order to put an end to fantasies about market solutions and, perhaps more importantly, any prospective attempts to make status- quo-favorable efficiency judgments that would deflect attention from the goal of achieving a reduction in environmental pollution, which Mishan (1971b, p. 26) labeled “the most urgent economic problem of our fragile civilization.”One of the oddities of these “primacy of the market” critiques lies in the fact that Pigovian taxes, which had significant support among those hostile to the Coase theorem, were viewed by environmental economists at that time as a market instrument for resolving externality problems. The tax put a price on, for example, pollution emissions and allowed market forces to take matters from there. What distinguished these taxes from Coase theorem solutions was that they essentially guaranteed a reduction in pollution emissions and imposed the costs of these reductions on the polluters. In short, Pigovian instruments satisfied the non-welfarist considerations preferred by the theorem critics and, one could argue, environmental economists generally.[109]
While the in-depth treatments of the Coase theorem that we do find in the literature from this period are almost wholly critical of the theorem and the policy conclusions that some drew from it, we find nothing like the same level of critical attention focused on Pigovian remedies. Dick's (1974) treatment of the Coase theorem and of Pigovian remedies in his monograph on environmental economics is illustrative of the attitude found in the environmental economics literature. He provides a lengthy critique of the Coase theorem, surveying and affirming every argument that has been raised against it in the literature. But when he comes to an analysis of Pigovian instruments, his presentation consists of a defense of it against various theoretical attacks and an acknowledgment that there may be some information problems with determining the optimal Pigovian tax. The transaction costs that loomed so large in his critique of Coase's result are nowhere in evidence in his analysis of the efficacy of State action.
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