(continued)
2. Coase’s social costs
Undoubtedly, Coase's social cost issue is based on his criticism of Pigou, but what he criticizes is not Pigou's concept of social cost, but Pigou's processing method. However, looking at the full text, Coase did not fully and accurately grasp Pigou's social costs. Graf concisely summarized Pigou's social costs: "When a person performs an action, he does not necessarily have to bear all the costs or receive all the benefits. The part he bears is called private cost, and the part he does not bear is called external cost. The sum of the two constitutes social cost." Obviously, Pigou did not define social cost from the perspective of a specific cost. He included all social costs. As Graf said: "Before talking about social costs, we must clarify the scope of the society we are concerned about in time and space." That is to say, from a historical perspective: social costs include not only current costs, but also all social costs in the future; from a macro perspective: it does not only refer to the social costs of a certain event or events in a certain region, but refers to all social costs that an event affects the entire society; at the same time, it does not only refer to economic costs, but also includes social, political, legal and other costs. The social costs caused by Coase's "behaviors of industrial and commercial enterprises that have a harmful impact on others" must also be considered from the above aspects. But Coase:
(1) Simply considering the economic cost and ignoring the social cost of lack of justice.
"The cattle farmer is assumed to be liable for the damage caused. If he increases the number of cattle from two to three, he is subject to an additional annual cost of $3. In determining the size of the herd, he is required to factor this in the context of other costs, that is, unless the value of the additional beef produced is greater than the additional cost including the increased value of damaged grain." If " The enterprise that caused the damage is not responsible for the damage caused by its actions. … The farmer's grain loss increases with the size of the herd. (This is the number of cattle that is maintained without considering the grain loss.) The farmer is willing to pay $3. If it is reduced to one, it is paid $5; if it is reduced to zero, it is paid $6. Therefore, if the cattle farmer keeps the number of cattle at 2 instead of 3, then he gets $3 from the farmer. The $3 becomes part of the cost of adding a third cow. "If some cattle inevitably go missing, then the supply of grain will only be reduced." This price is paid in exchange for an increase in the supply of meat. The essence of the choice is obvious: meat or grain? Of course, we cannot answer it hastily unless we know what value is gained and what value is sacrificed. "In all cases involving harmful effects, the economic question is how to maximize the value of production. "
The economic valuation of social costs is the top priority of this article, as can be seen from the above examples. Coase's arithmetic should be passable, but his mathematics is not so good, because the parameters that affect the size of the social cost are not just the market value at the time, but also the social impact after the accident is handled. From a practical point of view, when cattle eat grain, the herdsman is the beneficiary and the farmer is the loser. When the herdsman bears the responsibility for the damage, the farmer can be compensated for his losses, which balances the interests of the two, which is fair; on the contrary, if the farmer has to pay the herdsman to avoid greater damage, the gains and losses between the two will be more skewed, which is obviously unfair. “If when defining property rights, we only consider the principle of efficiency according to Coase’s proposition, and do not consider the loss compensation of the injured party, nor take into account the situation that the interests of the injured party will be further damaged and the interests of others who harm others will be further increased after the property rights are defined according to the principle of efficiency, then the injured person will think that this kind of law defining property rights is by no means the law he originally participated in. The law is an unjust law. In this way, the law will inevitably lose the basis of people's trust and compliance, and people will adopt methods they think are effective to protect their own interests, including using force to snatch, retaliatory property infringement, and personal infringement. "This will cause a large number of infringement incidents and society will pay higher social costs. This is “not what people need, and it’s not even usually what people are satisfied with.”
(2) Only consider current costs and ignore long-term costs
Rights are rules that provide actors with reasonable behavioral expectations. "For economists, accidents are a foregone conclusion. The costs they cause have already been precipitated. Economists are interested in preventing future (unreasonable cost) accidents and reducing the total number of accidents and accident prevention costs…Judges (and lawyers) cannot ignore the future." "It must focus on analyzing the expected behavioral stimuli generated by changes in the legal system and related factors, and regard the law as an incentive system that affects future behavior." Demsetz also believes: "Property rights are a kind of The importance of social tools lies in the fact that they can help a person form reasonable expectations when dealing with others. These expectations are expressed through social laws, customs and morals. "Because the rules of legal rights are open and certain, actors can use this rule to predict what legal liability consequences will arise when their actions cause harm to others, so that they can take measures to avoid harm to others before the harm actually occurs. In this way, the law can warn and prevent personal and property violations. This is an important function of the law to protect vested rights.
Undoubtedly, Coase's case analysis also includes an analysis of the social impact of the damage. For example, in the case of cattle breeders and farmers, it is not only the question of whether beef or grain is more expensive at that time, but also whether the cost of raising cattle or the farmer's cost of growing grain will be increased after the rights are defined. From a subjective point of view, Coase wanted to consider the impact of the precedent on the costs of raising cattle or growing grains, but his method of handling damage cases is still from case to case, and still follows the principle of ex post facto characterization. This kind of analysis is short-sighted even if it takes into account the impact on society. If rights are defined based on ex post efficiency as advocated by Coase, generally only after the damage has occurred can the benefits and losses of all parties be comprehensively analyzed and the government or the court be able to adjust property rights at any time based on market prices. Since market prices are unstable, property rights will always be in a state of uncertainty, and people will lack a reasonable expectation. If the price of wheat is high today, the cattle farmer will lose the lawsuit; if the price of beef is high tomorrow, the farmer will be sentenced to compensation. In this way, as cattle breeders and farmers, we must always keep an eye on the market. Who can still work with peace of mind? Maybe the farm will become a pasture at some point, and the crops that have been worked hard for most of the year may be destroyed by cattle. It will greatly reduce social production efficiency. Or if "people can predict the efficiency of the consequences of their actions, that is, if they know clearly that the benefits of their actions that harm others are greater than the losses suffered by others, they will feel free and bold to deliberately carry out actions that will have harmful consequences for others. This is tantamount to encouraging and encouraging the behavior of the strong to bully the weak." The social costs will be unimaginable. These costs are what the law is most concerned about and are the main purpose of law or justice, but Coase did not include them. But whether it is the choice of beef and grains, or the pollution of rivers and the loss of fish, Coase "discussed the issue of analyzing the value of real production." From case to case, Coase obviously lacked the concept of long-term stable order. Furthermore, river pollution is not just about "fish loss", nor is it simply a comparison "based on the market value at that time". We also need to consider the pollution of river resources, the future ecological impact, and future generations. We cannot eat today without explaining tomorrow.
(3) Pay attention to micro costs and ignore macro costs
Coase's cost analysis from case to case can only be a micro analysis, whether it is a cattle breeder and a farmer, or a confectioner and a doctor; even considering the overall impact, there is nothing you can do, because next time you still need to consider the current market value of the case, because the market price is always changing. As mentioned above, if legal principles are reformed according to Coase's proposition, there will be no certainty in the law, and individual case judgments can only be made after each infringement fact occurs. Without fixed laws, the entire society will lack certain rules of conduct. Furthermore, if unreasonable harm is rationalized, it seems to be a local problem, but it will inevitably lead to, as mentioned above, "the law will inevitably lose the basis of public trust and compliance. People will adopt methods they think are effective to safeguard their own interests, including the use of force, retaliatory property infringement, personal infringement and other methods." It may cause greater damage, without Rules, fairness, society will enter a state of disorder, which will definitely increase social costs, such as traffic order. Occasionally, it is possible to "not fine those who violate traffic rules, and the total product will be larger." But if there are no fines for all those who violate traffic rules, or there are no traffic rules, what will the operation of vehicles and urban traffic be like in a bustling metropolis? The social cost of rules and order is minimal.
(4) Even in terms of Coase’s socioeconomic costs, Coase’s calculation of economic costs is incomplete. Let us also take the damaging relationship between cattle breeders and farmers as an example:
1. Diseconomies of scale.
The production cost of a cattle breeder is not only the cost of damage to others, but the management cost is also the main cost of the cattle breeder, which will definitely consume the cattle breeder's time and energy. Managing cattle to prevent them from running around is not entirely to prevent damage to others, but more importantly, to prevent the management costs of finding cattle caused by running around, as well as the cost of property damage after cattle are lost, etc. For an individual, it is not better to raise more cattle. If the management ability is limited and the cattle cannot be managed and run around, then looking for cattle all day long will be a big loss, which may be much greater than the loss of compensation for grain. The cattle that run away do not have to go to the farmer's wheat field. He may be interested in strolling on the street, browsing in stores, or even finding a secluded place to rest in the noisy city. Where can you find it? Rural people all know that it sometimes takes a person half a day to find a cow. If you raise 10 cows and let them run around, you will need to hire 5 people to find the cows, which costs a lot. A cow eating the farmer's grain in a day may not be higher than a person's salary for half a day. Resource allocation should be within management capabilities to achieve optimal allocation.
2. Individual problems are not equal to the overall problem.
Coase's case clearly regarded individual issues as overall issues, and thus believed that if the number of cattle raised by individuals decreases, it will lead to a decrease in the total number of cattle raised by society. However, this is not necessarily the case. The award of compensation for losses to cattle breeders causes the cattle breeders to reduce the number of cattle they raise, but it does not mean that the number of cattle raised in the entire society has to decrease. This is what Samuelson calls the fallacy of composition. In fact, the key to the number of cattle raised is not only determined by the personal cost, but also by the net income, or the difference between the cost and the market price. If raising cattle is profitable, farmers might give up growing wheat and switch to raising cattle, which is much better than growing wheat and letting cattle suffer.
3. Market pricing does not only depend on cost
In Coase's discussion of various events in this article, the increase or decrease in production completely ignores other parameters and only considers the size of the cost. This is not a mistake that economists should make. Cost is only one factor that affects prices. It does not mean that items cannot be produced because costs increase. During inflation, costs are increasing no matter how you look at it, but due to the pull of demand, prices are also increasing. Taxes also always increase producers' costs, but no country has ever seen a reduction in the production of goods because of taxes. With sufficient demand, any costs can be passed on to consumers through higher prices. Of course, assuming other conditions remain unchanged, we can draw the relationship between costs and market prices, but the relationship between costs and market prices is not the same thing as the determination of prices. Just because there is a relationship between cost and price, it does not mean that price is determined by cost. If we study the price issue in this way, we will use one point to represent the whole, and we will ignore the basics and seek the last.
