Friday, August 29, 2014

Coase Confusion

A tempest in a teapot over seat reclining on airplanes and nifty little (overpriced) gadgets that allow a passenger to prevent the person in front from reclining.

New York Times pseudo-thinker Josh Barro: Don’t Want Me to Recline My Airline Seat? You Can Pay Me

And a response, Damon Darlin: In Defense of the Knee Defender

Barro appeals to an icon of economics: Ronald Coase. "[A]irline seats are an excellent case study for the Coase Theorem. This is an economic theory holding that it doesn’t matter very much who is initially given a property right; so long as you clearly define it and transaction costs are low, people will trade the right so that it ends up in the hands of whoever values it most."

Coase had plenty of time to clarify what he meant by his 'theorem' (which, as others have noted, was not a theorem anyway). A former student of his, the noted Deirdre McCloskey, has argued that the popular understanding of Coase's 'theorem' is mistaken. I'm not aware that Coase ever chimed in on McCloskey's argument one way or another.

The obvious problem with Josh Barro's (pathetic) line of reasoning lies in confused handwaving over property rights (or 'property' 'rights').

My first thought on reading Barro was: How American. Only an American would whine about rights over being able to shove his seat back into another person's face.

My second thought was: Josh should have paid more attention in his daddy's or Greg Mankiw's courses (not that either Robert Barro or Greg Mankiw have a particularly good track record in economics).

But the real issue is twofold. The practical component is: What rights does a passenger acquire when buying a ticket for a flight? The airline could designs seats in any of a number of ways.

The more general component is: How do we adequately describe or specify property rights to make sense of Coase's 'theorem'? The answer is that we can almost always come up with conundrums in any but the most painfully artificial examples of the kind that right-wing nutjobs like Mankiw and Barro like to advance an utterly disproven body of economic theory.

For example, in the case of the airline seats, why not pose the problem in terms of the air rights of the seat occupant behind the recliner? Philosophers (typically ignored by conservative economists who can't bear any inconvenient facts or thought) will point out that rights conflict. So there will be +no+ well-defined specification of property rights in the sense required by Coase. Logically impossible.

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