Coase's Theorem Means The Customer Doesn't Have To Always Be Right

Sometimes, when I’m buying a good or service, the person selling me this good or service is rude to me. In the past I’ve thought this was pretty unreasonable because I was trying to pay them money for the thing they were trying to sell me, so shouldn’t they be happy to sell me the thing? However, the situation is actually more subtle.

In particular, consider two possible worlds:

1. People have a right to not be treated rudely. Stores that treat customers poorly have to lower prices as a result.
2. People have a right to treat other people rudely. Customers that want to be treated nicely must pay a premium.

Both of these worlds are “equally valid” from a sort of first-principles kind of position; it’s unclear which of these rights is more justified than the other. Importantly, this means that my initial reaction of “people selling me things being rude is unreasonable” is itself unreasonable. The corresponding perspective of “people who buy things wanted to be treated nicely is unreasonable” is, in some sense, equally justified.

More generally, Coase’s Theorem in economics roughly says that any initial allocation of rights will result in an efficient outcome (modulo transaction costs, which can be huge in practice). This implies that “people should have to right to clean air so people who pollute ought to pay more” isn’t more justified than “people ought to have a right to pollute so people who want clean air should pay more.”

Coase’s Theorem is very interesting to me because it suggests that a lot of the reaction of “person X is doing a thing that inconveniences people so they ought to pay them” is sort of not well grounded because it could also be the case that the masses of people should pay person X to stop. This has made the project of solving everything with correct Pigovian taxes seem much harder and potential bargaining disagreements seem much more difficult to resolve because they can come down to hard questions like “who has what rights in this situation.”

Thanks to Buck Shlegeris for telling me about Coase’s Theorem. See David Friedman’s The World According to Coase for a more thorough explanation of Coase’s Theorem.