Tuesday, May 02, 2006

Pirates of the Coase Theorem

Suppose you buy some land in the Hollywood Hills, knowing its high price is partly justified by the great view the Hills yield (I assume the Hills are below smog level). Imagine now someone else bought some property just downhill from you and plans to build a big shopping mall that will ruin said veiw. What do you do?

If you're Johnny Depp, you sue West Hollywood to stop the construction. Citing environmental quality laws, the Pirates actor is trying to block the Sunset Strip development; the city's best defense is they don't think the actor uses his land enough, as he spends most of his time in France. So what? I can't remember the last I used my Risk board, but that's hardly grounds for anyone to take it from me.

It sounds like the parties could use a hefty dose of the Coase theorem. If you're not familiar with it, all it means in this case is a judge would determine who's right takes presedence (Depp to what he paid for, developers to using their land as they see fit) and then one party could pay the other to forgo their right. There's a lot of really cool implications from the Theorem but all you need to know is whatever the payments are between the parties, the result will be mutually beneficial.

Sadly, it seems to be a lot more fun to sue people than test the theories of Nobel Prize winners. Still, I wonder who has the right to what but my guess is Depp because A) he was there first and B) it's the Hollywood Hills: the view's the main reason why people live there and thus represents a large portion of the price he paid.

1 comment:

ryan said...

But how would they test the Coase Theorem unless the right in question is already established? The Coase Theorem more or less requires a legal system to delineate rights in the first place; otherwise, who pays whom to forgo what?

You see, this is what happens when you make interesting posts on subject tangentially related to classes I'm taking (law & econ). I can stop writing and pretend like my procrastination is studying. Maybe I should sue you?