Coasean Morality

via Frank Pasquale, I find this treat from Frank Tipler, the awesome weirdo physicist.

ABSTRACT: I show that in a true Coasean world – a world with no transaction costs – there would be no disagreement on moral questions. There would be no disagreement on what the appropriate distribution of income should be. There would be no disagreement on the question of capital punishment or abortion. If the government tried to re-distribute income contrary to the no-transaction cost ideal, then in a Coasean world, the beneficiaries would return the money to those from whom it was taken by taxation. Empirical studies of a near-Coasean economy show this predicted return occurring. Thus disagreements on values are actually disagreements over facts. I shall argue that the Coase Theorem itself suggests a moral rule: act to minimize transaction costs.

I didn’t read the paper, but the idea astonishes me! What can we say about the abstract? Well, to get the result, it seems you would need to stipulate something like homogeneity in motivation. Is heterogenous motivation a transaction cost? Well, what’s the aim of the social transaction that is an argument or conversation? If agreement or truth is the aim, then motivations based in something other than a drive for agreement or truth would indeed be a transaction cost. But if there are different kinds of motivations for maintaining a position, such as social signaling, commitment to an identity, or sporting obstinateness, then you can’t say agreement or truth is the point of the social transaction. And so you can’t see motivation incompatible with convergence as a transactions cost. Which seems like another way of saying that disagreements over values (or agreement on fact-indifferent values) drives disagreement over both factual and moral questions.

The point that what counts as a transaction cost depends on what the transaction is deserves more attention. The fact that two people are talking to each other, or bargaining over a deal, needn’t entail they are both up to the same thing. The fact that one party is aiming for ains from trade and the other party isn’t may well forestall a deal. And from at least one side, it may look like there was a transaction cost. But one or both party’s was simply mistaken about the meaning of the engagement. Transactions costs don’t keep me from reaping more consumer surplus from stones. I would simply be mistaken to try to bargain with a stone. And if I am frustrated by my inability to come to some understanding with someone who is not committed to basic norms of rationality, it’s not really their fault that they saw our intercourse as a different kind of transaction, with a different kind of point. Maybe they saw the game as “size each other up,” in which case, my frustrated agreement/truth-seeking would be seen as a perfectly satisfactory display of certain commitments of mine.

The Coase Theorem is supposed to be an impossibility theorem. The point is that there never is efficient allocation (the economists’ ideal analogue to the social epistemologist’s convergence on truth) since there always are transaction cost. And this does direct attention to the source of those costs, the so-called “institutions” or “rules of the game” underlying regularities of social interaction. Bad institutions can leave a lot of potential gains on the table. The theorem helps us see just how much institutions matter. But I think we should be careful not to assume too much when defining transactions costs. Gains from trade may go unrealized not because of transactions costs, but because of failure to coordinate on the purpose of interaction or the nature of the gains sought.

That said, I love the idea of reducing transactions costs as a moral imperative. Let’s test it. Try to think of examples where reducing transactions costs leads to a morally inferior result. Go!