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Thursday, July 29, 2004

The Coase Theorem in Action

As reported by the Associated Press:
When neighbors raised a stink over Scott Teston's request to change his property's zoning from agriculture to business, he responded with a bigger one - he put 17 pigs in his yard.

His neighbors aren't happy about the pigs:
Scott LaCoste moved his nearby construction company Monday because of the stench. Mary Preston wants to sell her home, but potential buyers flee when they get a whiff.

According to Ronald Coase, who won a Nobel Prize for the idea, it doesn't matter whether Teston has the right to stink up the neighborhood or if his neighbors have the right to be free of stink -- as long as the property right to stink is clearly assigned, society will get an efficient outcome.

In this case, Teston has the legal right to his pigs, and their smell has apparently made the neighbors a whole lot more willing to support his request to rezone his land.

His neighbors are lucky. Since it sounds like the neighborhood was rendered pretty much uninhabitable, he probably could have extracted tens of thousands of dollars in exchange for removing the pigs. Perhaps that's an efficient outcome -- the neighbors get the valuable boon of habitable home, and Teston gives up his pigs, which he doesn't seem to have really wanted anyway.

But paying tens of thousands to someone using his right to farm like a mugger uses a gun hardly seems like a fair redistribution of wealth. Efficiency isn't everything.

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