Will, an avowed non-utilitarian, sure does make a lot of compelling utilitarian arguments. In his latest flaying of Richard Layard (a hedonic utilitarian who assuredly deserves the flaying), Will deploys a fascinating corollary to the Coase Theorem that has implications far beyond his debate with Layard.
Layard has devised a new kind of negative externality argument. He observes that inequality of status makes many people – specifically, envious people – unhappy. As a result, any productive effort to improve one’s position creates a negative externality by reducing the relative status, and thus happiness, of others. Using standard Pigovian logic, Layard concludes that we ought to discourage (e.g., tax) productive effort in order to correct the externality.
Of course, Pigovian externality theory is almost 50 years out of date. Will brings to bear Ronald Coase’s “least-cost avoider principle,” which says that when parties A and B can both take actions to avoid a harm, efficiency dictates that whoever who can reduce the harm at the lowest cost should do so. For example, if an airport imposes noise pollution on nearby residents, the airport should relocate or restrict flights if and only if that’s cheaper than the residents moving away or installing sound-insulation. Will combines this insight with the observation that people can overcome their envy via sublimation or learning of new preferences. As Will puts it, “If you changing your preference is cheaper than taxing me, then you ought to change your preference.”
This reasoning opens a mighty interesting can of worms (and I mean that in a good way). In the traditional Coasean approach, preferences of agents are taken as given, and the only question is whose actions can reduce harm at lowest cost (keeping in mind that all harm is relative to the parties’ preferences). But if actions can change preferences, it follows that changing preferences may in some instances be the least-cost means of reducing harm. This is true even for less exotic forms of externality than Layard’s status-externality. Take the airport noise externality. Maybe the least costly solution is for people to start enjoying the sight and sound of airplanes. Or consider the visual externality created by a factory that obscures the view of a nearby mountain. Perhaps the least costly solution is for people to stop caring so much about natural scenery and learn, Rand-like, to appreciate the man-made beauty of mortar, block, and glass decorated with thousands of electric lights.
As Will’s post indicates, this approach also provides a ready-made response to anti-utilitarian arguments of the “what if lots of people have really monstrous preferences” variety. Consider a Southern town where lots of bigoted white people would be supremely satisfied if a black person were lynched. The Coasean answer: maybe they should just stop being bigoted! (This answer seems especially compelling if we take a multi-generational point of view.) Does an externality arise from people envying others? The Coasean answer: maybe they should stop being so envious!
Clever statists might seize on Will’s Coasean Corollary to justify some scary policy ideas. For example, a Marxist might claim the CC indicates people should stop being greedy and transform themselves – or be transformed by state power – into altruists. But remember, the CC doesn’t mean that preference change is always the preferred alternative, nor does it mean that only one party’s preferences can change. Preferences are malleable, but not infinitely so. Some preferences can change easily within a single person’s lifetime, others can change over generations, and yet others may be so built-in to human nature that changing them is essentially impossible. The Coasean argument is sensitive to the costliness of the actions involved.