Nick Szabo on Coase's theorem
Nick Szabo is usually worth reading, his take on Coase's theorem is quite entertaining (H/t Michael Froomkin].
Given good will and a reasonable set of circumstances the economists might be right and the world might indeed fit into their nice neat little theories. According to this world view it does not matter whether the railroad has the duty to suppress sparks its engines might emit or whether the farmer is responsible for ensuring that he does not plan crops too close to the track: with frictionless capitalism and goodwill the parties will come to the most economically efficient outcome through good faith negotiations. Thus every situation can be reduced to contract law.
Yes I simplify the argument, but not half so much, methinks as the economists simplify the world in their attempt to make it fit their theories.
Then comes along Nick Szabo who points out that the railroad may not be a good faith actor. Far from it, the railroad might deliberately create the sparks, or why not go further and deliberately torch the farmer's field with a flamethrower? Contrawise the farner might sabotage the tracks and derail the train.
Once it is admitted that the actors may act in extreme bad faith the comfortable little academic theory starts flying apart.
Didn't something rather similar happen to the Internet?
