Cass Sunstein on Ronald Coase
Ronald Coase, who died this week at the age of 102, was one of the greatest economists of the 20th century. His impact on academic thought and public policy is incalculable.
In 1991, Coase won the Nobel Memorial Prize in Economic Sciences in part for a theorem he set out in a 1960 article that is, by a large margin, the most cited law-journal paper of all time. The Coase theorem produced a revolution in both thought and public policy.
His target was the great British economist Arthur Cecil Pigou, who contended that if a polluter is emitting smoke, and thus causing injury, the best response is to make the factory owner pay for the injury or to impose a corrective tax.
Coase said Pigou failed to see “the reciprocal nature of the problem.” Suppose that a very noisy factory is causing legal injury to a doctor operating next door. Under Pigou’s approach, the factory should be required to pay damages to the doctor. But