"But sometime it takes a clever insight to define and enforce property rights...". This is interesting. Who is to do the definition and enforcement? It might seem from a first reading that this final sentence implies that there must be a central authority (i. e. the State) to implement PRs. I wonder why we might have a bias in favor of government-sourced definition and enforcement of property rights. Demsetz (1967) provides a simple theory on this, which might further your argument: property rights can emerge spontaneously, without the need of a centrally implemented set of rights...
Suppose you make the veto right transferable. Then everyone (including YIMBYs) has an incentive to initially veto, because the last person to sell the veto right can extract the entire surplus of deregulation. If its worth 6 million to rezone and build higher, if every voter except one commits to "Yes, rezone" because they each can get a little chunk of that surplus, the last person can holdup for 5.99 million. But because everyone will want to be that last person, no one will vote "Yes" in the first place. Someone who announces that he wants to rezone is asking to be heldup for his share of the surplus.
Similar problem in natural gas extraction. Natural gas deposits, unlike oil, usually span very large geographic territories. This means that dozens, maybe hundreds of people have mineral rights to the same deposit. So who gets to extract? Well, you could require an extractor to hold 100% of the mineral rights. But then you have a holdup problem. Everyone wants to be the last one to sell their rights, so no one sells. In fact, no rational actor would try to buy. The entire resource rent can be appropriated by the last rights-seller.
Colorado has a solution to this: in order to extract, you have to have 70% of the mineral rights (maybe that number is a little off, I don't remember exactly, but it's something like that). The state decided that to suffer a little bit of externality (on the 30% who don't sell) in favor of eliminating the holdup problem.
So now here's an interesting public policy implication. A world of alienability with zero externality tolerance, in cases where a holdup problem is possible, is identical to a world of zero alienability. There are no potential buyers of a right that whose exercise can be heldup. So in these cases, we have to decide ex ante, at the level of public policy, what percentage of potential externality-sufferers need to approve of your rights-excercising before you're permitted to exercise. This is troubling because it seems like the decision is going to basically be driven by one-vote popular sovereignty. For instance, go back to street voting. We have to decide, when we implement street voting, what our level of externality tolerance will be. At this decision, there are no transferable voting rights, so preference intensity isn't captured. If the decision is made by elected representatives (as in Colorado's case), then it should obviously be driven by rent-seeking behavior, and the well-organized coalition wins. So Coasifying markets with holdup potential maybe isn't different from not-Coasifying.
I believe the street votes in practice require 60% agreement to build, so the popular sovereignty may be minimized (but not fully).
But you are right to point out the meta-problem of deciding to allow the street votes at all or to allow them to be transferable. Should that have to be unanimous? Among which people? At some point people will just start doing things and externalities will be incurred.
The goal of Coasification is to move those decisions *closer* to the people who bear the costs and benefits. Better to deal with a hold-up problem on your block than a hold-up problem behind the wall of faceless bureaucracy.
Excellent post, Kurtis.
"But sometime it takes a clever insight to define and enforce property rights...". This is interesting. Who is to do the definition and enforcement? It might seem from a first reading that this final sentence implies that there must be a central authority (i. e. the State) to implement PRs. I wonder why we might have a bias in favor of government-sourced definition and enforcement of property rights. Demsetz (1967) provides a simple theory on this, which might further your argument: property rights can emerge spontaneously, without the need of a centrally implemented set of rights...
I believe I am agnostic toward the centralization question here. In the Demsetz story, there was clever insight by somebody!
On street votes:
Suppose you make the veto right transferable. Then everyone (including YIMBYs) has an incentive to initially veto, because the last person to sell the veto right can extract the entire surplus of deregulation. If its worth 6 million to rezone and build higher, if every voter except one commits to "Yes, rezone" because they each can get a little chunk of that surplus, the last person can holdup for 5.99 million. But because everyone will want to be that last person, no one will vote "Yes" in the first place. Someone who announces that he wants to rezone is asking to be heldup for his share of the surplus.
Similar problem in natural gas extraction. Natural gas deposits, unlike oil, usually span very large geographic territories. This means that dozens, maybe hundreds of people have mineral rights to the same deposit. So who gets to extract? Well, you could require an extractor to hold 100% of the mineral rights. But then you have a holdup problem. Everyone wants to be the last one to sell their rights, so no one sells. In fact, no rational actor would try to buy. The entire resource rent can be appropriated by the last rights-seller.
Colorado has a solution to this: in order to extract, you have to have 70% of the mineral rights (maybe that number is a little off, I don't remember exactly, but it's something like that). The state decided that to suffer a little bit of externality (on the 30% who don't sell) in favor of eliminating the holdup problem.
So now here's an interesting public policy implication. A world of alienability with zero externality tolerance, in cases where a holdup problem is possible, is identical to a world of zero alienability. There are no potential buyers of a right that whose exercise can be heldup. So in these cases, we have to decide ex ante, at the level of public policy, what percentage of potential externality-sufferers need to approve of your rights-excercising before you're permitted to exercise. This is troubling because it seems like the decision is going to basically be driven by one-vote popular sovereignty. For instance, go back to street voting. We have to decide, when we implement street voting, what our level of externality tolerance will be. At this decision, there are no transferable voting rights, so preference intensity isn't captured. If the decision is made by elected representatives (as in Colorado's case), then it should obviously be driven by rent-seeking behavior, and the well-organized coalition wins. So Coasifying markets with holdup potential maybe isn't different from not-Coasifying.
I believe the street votes in practice require 60% agreement to build, so the popular sovereignty may be minimized (but not fully).
But you are right to point out the meta-problem of deciding to allow the street votes at all or to allow them to be transferable. Should that have to be unanimous? Among which people? At some point people will just start doing things and externalities will be incurred.
The goal of Coasification is to move those decisions *closer* to the people who bear the costs and benefits. Better to deal with a hold-up problem on your block than a hold-up problem behind the wall of faceless bureaucracy.