prior probability

Thus far this past week, we have attempted to trace the intellectual origins of Ronald Coase’s counter-intuitive idea of reciprocal harms to his undergraduate years at the London School of Economics (see here and here), but as I asked at the end of my previous post, what if the English economist had developed his model of reciprocal harms after his undergraduate years at the LSE?

More specifically, another possible catalyst of Coase’s reciprocal-harm axiom is Chicago economist Frank H. Knight (pictured below), especially his paper “Some Fallacies in the Interpretation of Social Cost” (Knight 1924, 1952), which was first published in the Quarterly Journal of Economics in 1924.

Although it is unlikely that Coase would have read Knight’s 1924 paper as a student at LSE (after all, Coase’s major was not economics), Knight’s social cost paper was considered important enough to be subsequently included in a collection of essays edited by George J. Stigler & Kenneth Boulding and published by the American Economics Association in 1952 (PDF here), so even if Coase was not familiar with the original version of Knight’s paper he may still have become acquainted with it in its subsequent incarnation. In addition, consider the following exchange that took place between Ronald Coase and his Chicago colleague William Landes in 1981:

LANDES: Ronald, you mentioned Frank Knight’s Risk, Uncertainty, and Profit as an important influence on your work. One of Knight’s papers that has been most influential in the recent law and economics area is his paper, “Some Fallacies in the Interpretation of Social Cost.” That was in some ways a forerunner of your paper on social cost because it spells out the importance of property rights in resource allocation, and I wonder if you were familiar with Knight’s article?

COASE: Oh, yes. In fact, I would say that the title of my paper came from Frank Knight, and the title of the paper was rather to indicate the topic I was talking about, because, of course, I don’t think the concept of social cost is a very useful one, and I don’t ever refer to it. But it did indicate to people what I was talking about. I knew it, and if there are traces of what Knight says in my work, it wouldn’t surprise me.

(Source: page 183 of Edmund W. Kitch, “The Fire of Truth: A Remembrance of Law and Economics at Chicago, 1932-1970,” Journal of Law & Economics, Vol. 26, No. 1 (1983), pp. 163-234; PDF available here.)

The title of Ronald Coase’s social cost paper can thus be traced back to Frank Knight’s previous paper, but was this precursor also the source of Coase’s reciprocal-harm axiom? After all, Coase had already posited his axiom as early as 1959 in his FCC paper. As it happens, Knight uses the word “reciprocal” to describe two cost charts in his social cost paper. (See Knight 1924, p. 588; Knight 1952, p. 165) I will post Knight’s cost charts and discuss their possible significance for Coase when I resume my this series on Monday, 5 October. (To be continued …)

In my previous two posts (see here and here), we attempted to trace the intellectual origins of Ronald Coase’s reciprocal-harm axiom to Wesley Hohfeld’s theory of legal relations and to the “LSE tradition in cost theory” developed by Lionel Robbins and F. A. Hayek at the London School of Economics in the 1930s. A more likely source, however, is Arnold Plant (pictured below), Coase’s favorite professor at the London School of Economics.

Why Plant? For starters, because we have no evidence of Coase attending any lectures by Hayek or Robbins during his undergraduate years — in fact, Hayek did not join the faculty of the London School of Economics until 1931,[1] when Coase would have been studying abroad (see, e.g., Coase 1991)[2] — and furthermore, by his own admission (see, e.g., Coase 1982), it was Professor Plant who exerted the greatest influence on Coase’s intellectual development during his formative student years at the London School of Economics.[3]

By way of background, Coase had enrolled in the Bachelor of Commerce or “B.Com.” program at the London School of Economics in October 1929,[4] and Plant had begun teaching at the London School of Economics in 1930, when he was appointed to the newly‑created position as Sir Ernest Cassel Professor of Commerce with special reference to Business Administration.[5] (At the time, Plant’s teaching and research duties centered on the Industry and Trade Group in the B.Com.[6]) Here is where the paths of Ronald Coase and Arnold Plant intersect, for as part of his studies for the undergraduate B.Com. degree, the young Coase would have very likely enrolled in a course on the Elements of Commercial Law and Industrial Law,[7] a course that was most likely taught by Arnold Plant, who was the director of the Industry group at LSE at the time.[8]

As a result, Coase may have already been familiar with the case of the noisy confectioner (Sturges v. Bridgman) as well as with the many other reciprocal-harm cases in his 1960 social cost paper from his undergraduate student days at the London School of Economics, when Coase most likely attended a seminar on industrial law taught by Plant.[9] On this view, it was Plant who first taught Coase about the reciprocal nature of harms. But there is yet another possibility: what if Coase had developed his model of reciprocal harms after his undergraduate years at the LSE? (To be continued…)

[1] See Caldwell & Klausinger 2022, pp. 278-282.

[2] Coase had been awarded a travel scholarship for the 1931-32 academic year and was studying in the United States at that time.

[3] See Coase 1988a, p. 20. See also Marciano 2019, pp. 559-560.

[4] Coase had enrolled in an undergraduate commerce degree at the London School of Economics in 1929 and attended the lectures of Arnold Plant during his second year of studies. See Marciano 2019, p. 3.

[5] See Coase 1994, p. 179. See also Thomas 2016, p. 23.

[6] See Cord 2019, p. 332. In addition to the Industry Group, the B. Com. program at LSE comprised several other sections as well, including “Banking and Finance,” “General Transport,” “Shipping and Inland Transport,” “Public Utilities,” and “Art in Relation to Commerce.” See Appendix 3 in Thomas 2020.

[7] Coase himself once mentioned attending multiple law courses at the London School of Economics, where Coase studied commerce as an undergraduate from 1929 to 1931. See Coase 1988a, p. 29. See also Campbell & Klaes 2016, pp. 809–810. See also Marciano 2019, p. 557

[8] According to Jim Thomas (2020), an Emeritus Reader and Research Associate at the London School of Economics (LSE), the Bachelor of Commerce degree was a three‑year degree that was first offered by the LSE in 1919, and this undergraduate degree required three sets of exams: an Intermediate Examination at the end of the First Year as well as a Final Examination (the B.Com. Final) consisting of two parts, with Part 1 being taken at the end of the Second Year and Part 2 at the end of the Third Year. See Thomas 2020, pp. 6–7. Among the subjects that Coase would have been tested on for Part 1 of the B.Com Final was “Elements of Commercial Law (treated from the commercial rather than the legal standpoint).” See Thomas 2020, p. 19, Appendix 3(b). Likewise, for students in the Industry group, Part 2 of the B.Com Final Exam encompassed the following four subjects: (i) an “Approved Modern Foreign Language,” (ii) “Business Organization and Scientific Management,” (iii) “Works and Factory Accounting, with special reference to Cost Accounts and Depreciation,” and last but not least, (iv) “Industrial Law” or “The Law relating to Factories and Workshops, Workmen’s Compensation, Trade Unions, Employer’s Liability, Friendly Societies, National Insurance, [and] Labour conditions.” See Thomas 2020, pp. 20–21, Appendix 3(c). See also Campbell & Klaes 2016, pp. 809-810.

[9] See Marciano 2019, p. 557. See also Campbell & Klaes 2016, pp. 809-810.

Picking up where we last left off, I had identified another possible source of Ronald Coase’s counter-intuitive reciprocal-harm model at the end of my previous post: what economists and historians of economic thought call the “LSE tradition in cost theory,” an approach to economics that was developed by Lionel Robbins and F. A. Hayek at the London School of Economics in the 1930s. What is this LSE tradition, and how did it influence Coase’s own thinking?

In brief, both Robbins and Hayek had rejected the classical British view that cost is an objective or measurable physical quantity, such as labor hours or material units. Instead, they adopted a psychological, forward-looking “opportunity cost” approach to economics. Under this “opportunity cost” approach to economics, the true cost of any choice is not a historical tally of resources spent, but the subjective value of the next best alternative foregone at the moment of decision. (For further information, see the late Jim Buchanan’s overview “Introduction: L.S.E. Cost Theory in Retrospect,” in L.S.E. Essays on Costs. (Buchanan & Thirlby 1981, Ch. 1) This work is available here via the Online Library of Liberty (OLL) for free.)

On this view, one can thus trace a direct relationship between Robbins and Hayek’s opportunity cost approach to economics and Ronald Coase’s reciprocal model of harm: by applying the Robbins-Hayek-LSE view that cost is the value of the next best alternative foregone, Coase shows how preventing harm to one party always inflicts an opportunity cost on another! But is this what Coase learned during his student years at the London School of Economics, and if so, who did he learn it from, for as we shall see in my next post, we have no record of Coase ever attending any of Robbins or Hayek’s LSE lectures? (To be continued …)

The first time Ronald Coase uses the word “reciprocal” to describe the problem of harmful effects is in his 1959 FCC paper (Coase 1959), but this observation begs the question, what is the source of Coase’s reciprocal-harm model? Did Coase borrow or steal? Or did he discover it on his own? Today, I will one consider one possible source of Coase’s reciprocal-harm model: Wesley Hohfeld’s influential theory of legal relations. (Hohfeld 1913, 1917)

Among other things, Hohfeld (pictured below) observed the ubiquity of rights talk in legal reasoning as well as the polysemy of this legal concept: the legal concept of a “right” in law can be used in different ways to describe different types of legal relations. What Hohfeld did that would shape generations of legal scholars-and perhaps at least one economist, Coase–is create a theoretical framework to capture the precise meaning of different uses of the word “right” in legal reasoning.

Without getting bogged down in the tedious details of Wesley Hohfeld’s overall framework, the part of Hohfeld’s theory of legal relations that is most relevant to Coase’s reciprocal harm model is the logical relationship between legal rights and legal duties. Simply put, a Hohfeldian legal right is always linked to a correlative duty: a right held by one person, let’s call him A, necessarily entails the imposition of a corresponding legal duty on someone else, B.

Nevertheless, the available evidence indicates that Coase most likely developed his reciprocal harm model independent of the work Wesley Hohfeld. For starters, Coase never cites Hohfeld in either his FCC or social cost paper. (As an aside, the first British legal scholar to formally cite and integrate Hohfeld into English legal scholarship was G. W. Keeton (1930).)

Secondly, although Coase uses the word “right” dozens of times in both his FCC and social cost papers, for Coase a legal right is just another “factor of production” or economic input, such as land, labor, and capital. Towards the end of his social cost paper, Coase writes:

“If factors of production are thought of as rights. it becomes easier to understand that the right to do something which has a harmful effect (such as the creation of smoke, noise, smells, etc.) is also a factor of production. Just as we may use a piece of land in such a way as to prevent someone else from crossing it, or parking his car, or building his house upon it, so we may use it in such a way as to deny him a view or quiet or unpolluted air. The cost of exercising a right (of using a factor of production) is always the loss which is suffered elsewhere in consequence of the exercise of that right–the inability to cross land, to park a car, to build a house, to enjoy a view, to have peace and quiet or to breathe clean air. (Coase 1960, p. 44)

This passage, however, points us to another possible source of Coase’s reciprocal harm model: the so-called “LSE tradition in cost theory,” which was developed by Lionel Robbins and F. A. Hayek at the London School of Economics in the 1930s. (To be continued…)

Works cited:

R. H. Coase. “The Federal Communications Commission.” Journal of Law and Economics, Vol. 2 (1959), pp. 1-41.

R. H. Coase. “The Problem of Social Cost.” Journal of Law & Economics, Vol. 3 (1960), pp. 1-44.

W. N. Hohfeld. “Some Fundamental Legal Conceptions as Applied in Judicial Reasoning.” Yale Law Journal, Vol. 23, No. 1 (1913), pp. 16-59.

W. N. Hohfeld. “Fundamental Legal Conceptions as Applied in Judicial Reasoning.” Yale Law Journal, Vol. 26, No. 8 (1917), pp. 710-770.

G. W. Keeton. 1930. The Elementary Principles of Jurisprudence. London: A. C. Black.

I have long been fascinated by the English economist Ronald Coase’s insight that harms are always a “reciprocal” or jointly-caused problem–so much so that I wrote a paper at the end of last year titled “Coase’s fable” in which I describe the idea of reciprocal harms as an axiom or truism, trace the intellectual origins of Coase’s counter-intuitive idea, and explore its domain or outer limits. (For reference, I blogged about my 2025 Coase paper here, here, here, and here. Also, for the record, I have not used any A.I. models to research or write any of my papers!)

Since then, I presented my paper in May of 2026 at the first-ever joint conference of the European Society for the History of Economic Thought (ESHET) and the History of Economics Society (HES) at the Université Côte d’Azur in Nice, France, and based on the excellent feedback I received at the conference, I have expanded the part of my paper that traces the intellectual origins of Coase’s reciprocal-harm model. (Among other things, I explore the relationship between Coase’s model and the opportunity-cost approach to economics that Lionel Robbins and F. A. Hayek developed at the London School of Economics in the 1930s, and I consider the possibility that Coase might have been influenced by Wesley Hohfeld’s influential theory of legal relations — stated simply, the idea that every legal right creates a corresponding duty, and vice versa, every legal duty implies a corresponding right.) I will say more about these substantive additions to my paper in my next two posts; in the meantime, here is a link my revised paper (via SSRN).

On this day (28 September) in 1821, Juan José Espinosa de los Monteros, secretary of Mexico’s newly-created “Provisional Governmental Board” (the first governing body of independent Mexico that administered the country from 28 September 1821 until 24 February 1822), drafts the Acta de Independencia del Imperio Mexicano (Declaration of Independence of the Mexican Empire; pictured below), the founding document by which Mexico declared independence from the Spanish Empire.

Before there was Bad Bunny, there was Tego Calderón!

What is the optimal number of seats in the United States Congress? On 25 September 1789, the Congress proposed twelve amendments to the U.S. Constitution. Ten of these amendments–the so-called “Bill of Rights“–were subsequently ratified by the requisite number of States. The two “lost” amendments that were not ratified at the time are the original first amendment — the Congressional Apportionment Amendment, which would have enacted a new mathematical formula for determining the number of seats in the U.S. House of Representatives — and the Congressional Compensation Amendment, which was finally ratified in 1992 (becoming the 27th Amendment to the U.S. Constitution)! This amendment states that any law that increases or decreases the salary of members of Congress may take effect only after the next election of the House of Representatives has occurred.

Bonus link: Check out this fascinating paper by Zachary S. Elkins (University of Texas) for a history of the 200-year gestation and birth of the 27th Amendment. (Professor Elkins’s paper is also available here and here.)

On this day (24 September) in 1957, President Dwight D. Eisenhower deploys the legendary 101st Airborne Division (based out of Fort Campbell, Kentucky) to Central High School in Little Rock, Arkansas, after the Arkansas Guard (under orders of the Governor, Orval Faubus) had blocked the “Little Rock Nine” from desegregating the school. [The Little Rock Nine are Minnijean Brown (b. 1941), Elizabeth Eckford (b. 1941), Ernest Green (b. 1941), Gloria Ray Karlmark (b. 1942), Carlotta Walls LaNier (b. 1942), Thelma Mothershed (1940-2024), Melba Pattillo Beals (b. 1941), Terrence Roberts (b. 1941), and Jefferson Thomas (1942-2010).]

But was Ike’s historic order constitutional? Can a president deploy the armed forces of the United States to quell a purely domestic disturbance? And if so, what are the limits, if any, to his emergency powers? I explore this fundamental legal question in my 2019 law review article “Domestic Constitutional Violence,” which has been cited several times since its publication. See, for example (in alphabetical order, by author):

• “Trump(ing) Tradition: Old Laws, New Norms, and the Danger to Civil-Military Relations” by Ryan Burke (Air Force Academy) and Jahara Matisek (Naval War College)
• “The Presidential Coup” by Anthony Ghiotto (University of Illinois)
• “Why the President Should Remain Commander in Chief of the D.C. National Guard” by Christopher F. Melling (Judge Advocate, United States Marine Corps)
• Föderalismus-Rhetorik-Dekonstruktionen — Rechtsdogmatik als Literaturdogmatik by Rico David Neugärtner (LL.M., Cornell)
• “Dangerous to the Liberties of a Free People: Secret Societies and the Right to Assemble” by Nathan J. Ristuccia (Institute for Free Speech)