The Coase Theorem is the idea that voluntary transactions are an economically efficient way of solving the problem of harmful effects (or “negative externalities” in the patois of professional economics jargon) and that the outcome of such private bargaining is invariant to the assignment of legal rights. But what happens when such voluntary transactions themselves generate both harmful and beneficial effects?

Consider the case of George Monbiot, founder of the fascinating website Arrest Blair, who will award you a hefty bounty if you try to put former British Prime Minister Tony Blair under citizen’s arrest for “crimes against the peace”, i.e. launching a war of aggression in Iraq.  So far, the website has paid out over 10,000 British pounds in bounties in connection with the first four attempts to arrest Mr Blair. (The fifth and most recent attempt to arrest Blair is described here.)

Regardless of whether you think Mr Blair is a war criminal or whether the war in Iraq was justified, is this private bounty or subsidy not an economically efficient practice?  True, the hassle of a citizen’s arrest and the risk of future symbolic arrests impose a non-trivial cost on Tony Blair, but remember, we are often dealing with a problem of a reciprocal nature, as Professor Ronald Coase himself would say, because allowing Mr Blair to carry on his business as usual imposes a non-trivial mental cost on people like George Monbiot.

Bonus question: why does PayPal block donations to the Arrest Blair website?Hat tip: digg.com