Unlike most modern economists, the University of Chicago law professor avoids complex mathematics; his works, although highly theoretical, are written in plain English. In the 1960 paper that made his reputation, “The Problem of Social Cost,” Coase used the example of a rancher whose cattle sometimes stray and eat the corn of the adjacent farmer. So long as they can negotiate, the rancher and the farmer can solve their problem privately. Perhaps they will share the cost of a fence. Perhaps the rancher will compensate the farmer instead of erecting a fence. Whatever approach they choose, Coase demonstrated, it will make them both better off while minimizing the total cost. Laws and regulations run the risk of preventing cheaper solutions, such as having the farmer plant in a different field,
Coase is popular with conservatives, but his thinking has made inroads across the political spectrum. Even environmentalists praise the acid-rain controls in last year’s Clean Air Act. The law lets power plants trade their rights to emit sulfur dioxide: a plant that can beat federal standards may sell its unneeded emission rights to one for which compliance would be costly, so the total cut in pollution occurs in the least expensive way.
Coase, 80, learned of his prize while on a Tunisian vacation. His plans for the $1 million award? “At my age, I’m not going to spend it on myself.”
