Ronald Coase
Who is really harming whom?
He gets in your way and you get in his; weigh which loss is heavier
"The Problem of Social Cost", Journal of Law and Economics, 1960
His way of working gets in my way; should I make him stop? This page is about the half of that question people leave out.
What actually happened?
In 1879 an English court heard a case. A confectioner had pounded ingredients with a mortar and pestle for more than twenty years and no one had complained. Then the doctor next door built a consulting room against the confectioner's wall, and the thumping drowned out his stethoscope. The court ordered the confectioner to stop. Eighty years on, Coase looked at the case and saw that without the doctor's new room the mortar harms no one. The trouble comes from two uses side by side.
The harm is made by two parties
People assume A harmed B, so A is what needs managing. But to spare B you have to harm A. Without the doctor the mortar is harmless, and without the mortar the room is quiet. The trouble is two uses of the same place.
A late-night food stall keeps the flat upstairs awake. Close the stall, and the owner loses their living.
Weigh the heavier loss
The real question, he said, is whether A should be allowed to harm B or B to harm A. His test is to avoid the more serious harm. That means putting both losses on one table instead of first deciding who is the culprit.
Stopping the confectioner costs a twenty-year trade. Not building the room costs one room. Which is heavier has to be worked out.
Talking only settles it when talking is cheap
In a world where bargaining costs nothing, he argued, the two sides would settle on an arrangement that suits both, and who holds the right only decides who pays whom. He added at once that in the real world bargaining costs money, which is why who holds the right at the start matters.
Two households can settle a shared lane themselves. A hundred on one street cannot, and need a rule first.
How do I use it today?
Where you are: Someone's way of doing things is getting in your way and you want them to stop, or you have been told to stop.
Ask first: If he stops, what does it cost him? If I carry on, what does it cost me? Is there an arrangement that leaves both better off: another time, another place, a payment?
Where it goes wrong: Reading this as "money settles everything". He said himself that bargaining is not free, and some harms cannot be priced. The chapter asks you to lay out both sides' accounts, not to name a price.
Lines to keep
We are dealing with a problem of a reciprocal nature.
The problem is to avoid the more serious harm.
Without the new room, the mortar harms no one.
Same situation, other people are asking
Neither of us will be the one to back down.He meant it. Do I still let it go?Neither of us will give an inch and we both need to get past.He has gone quiet on me and I don't know what to say.It turned into a fight · all 10 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.