Robin Hahnel sent me a message last night asking if we would allow him to comment on my comment on Clark William-Derry's comments on the "Misinterpreting the Coase Theorem" article he co-authored with Kristen Sheeran (Google images provided the picture to the right of Robin and Kristen. The only reason I posted it is to note that radical economists drink beer too).
So here you go--In Robin's words:
In a recent blog post, Sightline’s Clark Williams-Derry recently commented on my article, “Misinterpreting the Coase Theorem” published in the Journal of Economic Issues. Since our hope when we wrote the article was to stimulate discussion about what the Coase theorem does and does not say, and what a careful examination of the theorem does and does not suggests about the likelihood of achieving efficient pollution levels through voluntary negotiations between pollution victims and polluters even if property rights are clarified, we are pleased that Williams-Derry’s piece has sparked a great deal of response.
For the most part Mr. Williams-Derry summarized and interpreted our article well. However, we did we not write his blog, nor were we shown a copy before it was posted. His words are entirely his own. And while Mr. William-Derry conveyed the substance of our argument accurately, in our opinion he did misrepresent what Coase wrote in some regards.
For example, Williams-Derry states that “Coase proved mathematically that, with a system of guaranteed pollution property rights and under ideal "free-market" conditions, society as a whole would get exactly the amount of pollution that its members want -- no more and no less.”. He then goes on to criticize the Coase theorem as an example of over reliance on theory and mathematics by the economics profession in general.
We, of course, are quite aware that Coase did not use any mathematics in his argument, and did not claim to have “proved” any “theorem.” While some economists can be rightfully accused of over reliance on formal theory and mathematics at the expense of common sense reasoning, Coase is actually not among them. As a matter of fact, early in our article we argued that this was a case where more formal mathematical modeling might have been useful to avoid the kinds of misinterpretations that have flourished. To quote ourselves: “The confused history of misinterpretations of what is called the Coase ‘theorem’ demonstrates why formal modeling, where assumptions are stated rigorously and conclusions are derived as theorems, can sometimes be useful.” Moreover, we were very clear in our article that while many others have misconstrued Coasian negotiations as a “free market” process, Coase was fully aware that there was no market involved, and therefore did not assume “ideal ‘free market’ conditions” as Williams-Derry states.
Since he is not a professional economist it is not surprising that Mr. Williams –Derry is not thoroughly familiar with Coase’s work , and has confused what Coase said with how some of his followers have misinterpreted him. We believe we have been quite careful in this regard in what we published. But Mr. Williams-Derry did summarize our main findings well enough to warn the general public that the implications of the so-called Coase “theorem” are quite different from how they are usually portrayed, and we thank him for doing so.
