Introduction

The modern theory of externalities developed simultaneously with welfare economics and has typically embodied its welfarist orientation.¹ In fact, it is the traditional welfarist approach to the subject that has generated resistance to the economic approach to external effects, such as pollution, among non-economists.

While economists typically eschewed non-welfarist arguments in the post-WWII period, there is at least one prominent instance in which such arguments were very much in play, both directly and as underpinnings for welfare-related arguments: the debate over the Coase theorem. This debate saw the Coase theorem regularly challenged on both welfarist (whether the result is efficient, with efficiency being variously defined) and non-welfarist grounds. This then raises the question of what it was about the Coase theorem that led economists into the latter territory. The present paper revisits the early debates over the Coase theorem, where non-welfarist arguments featured prominently, in order to bring out the nature of those arguments and attempt to understand the rationale(s) for their deployment.

We must acknowledge from the outset that it can be difficult, at least at times, to disentangle welfarist and non-welfarist arguments. The starting point for the analysis here is Sen's (1979, p. 464) definition of “welfarism” as “the principle that the goodness of a state of affairs depends ultimately on the set of individual utilities in that state.” As Kaplow and Shavell (2003) have emphasized, goals such as “fairness” can have both welfarist and non- welfarist components - the former if “fairness” affects individual utilities and thus social welfare, and the latter if “fairness” is considered an end in itself, or an independent evaluative principle, apart from any influence on individual utilities. In the discussion that follows, our attention is confined to aspects of the Coase theorem debate that appear to explicitly raise non- welfarist concerns.

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