The State of North Carolina recently enacted a controversial law limiting the legal rights of “transgender individuals.” The law prevents such persons from using public restrooms that don’t correspond with the gender (male or female) on their birth certificates. (By the way, although the North Carolina law allows private businesses to create their own wash room policies, practically speaking this law is unenforceable. After all, who carries around their birth certificate?) In any case, Tyler Cowen, one of our favorite public intellectuals, has written up a thoughtful post about the N.C. law on his hyper-blog Marginal Revolution. Specifically, he poses the following legal question:

Should there be a legal definition of who is a transgender person and why? 

But is this a legal problem or an economic one? From a Coasian perspective, we think he is asking the wrong question. Instead of asking what it means to be transgender, shouldn’t we be asking a different question, i.e. who pays?  After all, if elected officials in North Carolina care so strongly about this issue, why don’t they just allocate sufficient funds from the state budget to retrofit all public buildings with three sets of bathrooms? (Yes, collecting taxes to pay for extra restrooms is coercive, but our three-bathroom solution is less coercive (and more practical) than telling people which bathroom to use.)

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