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Thursday, January 27, 2005

Practicing Economics Without a License
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I am not an economist, and neither is Larry Lessig. Tom Lenard is, and in an article in Regulation Magazine, Lenard suggests Lessig has been "practicing economics without a license."

At issue is a piece Lessig wrote called "Coase's First Question" in the previous issue of Regulation, in which Lessig claims there are two types of Coase practitioners -- "proper-Coaseans," who ask first if the resource in question should be the subject of property at all, and "property-Coaseans," who go straight to asking where the property right should reside. This, Tom argues, is clever language but distorts Coase's message.

Lessig quotes Coase as saying "All property rights interfere with the ability to use resources. What has to be insured is that the gain from interference more than offsets the harm it produces." But that is "quoting Coase out of context," Tom argues:

Coase was not suggesting the need to subject every property rights decision to an ex ante cost-benefit analysis to determine "whether the resource should be the subject of property at all." That would be a pretty radical notion, indeed.

Lessig also quoted from a spectrum rights article by Yochai Benkler, and he compares spectrum and broadband to international trade rights. "Creating international trade rights," Tom says, leads to artificial scarcity, and in fact such rights -- quotas -- have been used with adverse effects on efficiency:

Spectrum and broadband, on the other hand, really are scarce, which is why they need to be subject to a property-rights regime to be allocated efficiently. Broadband obviously has scarcity value, because it takes lots of real resources -- capital and labor -- to provide it. We know that spectrum is scarce, at least in the amounts that the government has made available, because it commands very high prices in the market.

posted by Patrick Ross @ 3:50 PM | Broadband

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