prior probability

In my previous post, I explained why Ronald Coase’s reciprocal-harm insight should be treated as an axiom, i.e. an indemonstrable first principle or formal logical expression used in a deduction to yield further results. Today (Merry Christmas!), I will explore what I like to call the domain question: what is the scope of Coase’s axiom? Does it apply to all harms or only to economic harms like the ones discussed in Coase’s original FCC and social cost papers, i.e. the papers in which Coase first introduced his reciprocal-harm model? There are three logical possibilities: narrow, intermediate, and broad.

1. Narrow: economic harms. On one end of the reciprocal-harm domain space are so-called “externalities” or economic harms (see here, for example), i.e. the spillover effects of otherwise lawful or socially-useful business activities such as cattle trespass, noise and vibrations, railway sparks, signal interference, smoking chimneys, etc.: the examples that Coase himself surveys in his FCC and social cost papers. In support of this narrow interpretation of Coase’s axiom one need look no further than the very first sentence of Coase’s social cost paper itself, which begins thus: “This paper is concerned with those actions of business firms which have harmful effects on others.” (Coase 1960, p. 1)
2. Intermediate: involuntary harms. Although the ostensible subject matter of Coase’s FCC and social cost papers is the problem of economic harms (e.g. cattle trespass, noise and vibrations, railway sparks, signal interference, smoking chimneys, etc.), why should we limit the domain of Coase’s axiom in such an artificial or arbitrary way? Why not extend the domain of Coase’s axiom to include all involuntary or unintentional harms more generally? On this intermediate view of the problem of harmful effects, what matters is not the source of any given harm (i.e. whether the harm was generated by a business firm or not); what matters is the intent or motive of the actor who generated the harm: did he (or in the case of a business firm, it) intend to injure another party?
3. Broad: all harms. On the other extreme of the domain space are all harms, not just unintentional harms or accidents but also deliberate and intentional ones. After all, what is a “harm” — whether unintentionally or deliberately produced — but an action or omission that imposes a disutility or cost on another party? (For general philosophical definitions of the concept of harm, see Feinberg 1984; Gert 2004.) On this broad view of harms, what matters is not the intent or motive of the actor producing the harm, i.e. whether the actor acted deliberately or not. What matters is that someone has incurred a disutility or cost without consenting to the imposition of that cost.

Which of these three logical possibilities is the most plausible one? Should it matter whether the harm is an “economic” one? (If so, how does one distinguish “economic” from “non-economic” harms?) Or in the alternative, should the motive of the person or firm producing the harm matter? (If so, why should intentionality matter?) For my part, I see no reason why the domain of Coase’s axiom should be limited to options one or two above; from a purely logical perspective, the domain of an axiom (or a set of axioms) includes anything that can be derived or deduced from that axiom or set.

Feliz Nochebuena; Happy Christmas Eve! As readers of this blog may know, I have long been fascinated with Ronald Coase’s counter-intuitive insight that harms are a “reciprocal” problem. What you may not know, however, is that this simple idea has haunted me since the fall of 1990, my first semester of law school, when I was Guido Calabresi’s torts student at Yale, for it was in one of Guido’s legendary torts lectures that I was first exposed to Coase’s paper The Problem of Social Cost, the landmark work in which Coase introduces his reciprocal-harm model.

Since then, I have published no less than 10 scholarly papers (see here, for example) in which I explore or extend various aspects of Coase’s work, but the one idea that continues to haunt me the most is Coase’s reciprocal-harm thesis. Why has the idea of “reciprocal harms” haunted me for so long? Because if Coase is right, if harms are a reciprocal problem, this proposition would have radical and far-reaching implications for moral and political philosophy. But is Coase right? Are harms really reciprocal? Also, how would we prove (or disprove!) this claim? Is Coase’s model of reciprocal harms falsifiable in the Popperian sense?

Here is where my most recent work-in-progress on reciprocal harms (“Coase’s fable”, available here) comes into play, for I have now decided to describe Coase’s destabilizing insight that harms are a reciprocal problem as an axiom. My reason for making this move is strategic: to sidestep the truth and proof questions I posed above, for axioms are supposed to be self-evident. [On this note, see footnote 6 of my paper, where I define an axiom as “a statement of proposition that is regarded as being self-evidently true”.] I concede, however, that calling Coase’s insight an axiom now opens up a new can of pesky philosophical worms, so to speak. Among these are: why are axioms “self-evident”, and is Coase’s reciprocal-harm model really an axiom?

Regarding these deeper questions, I have found Robert G. Brown’s book-length work on the history and nature of axioms to be helpful. To the point, according to Brown, a physics professor at Duke, an axiom is just a starting point, an assertion or proposition that we simply assume to be true for the sake of argument: “an axiom is not necessarily a self-evident truth, but rather a formal logical expression used in a deduction to yield further results.” [1] In other words, axioms are exempt from the necessity of independent proof: you either accept Coase’s insight as true, as an accurate or useful model of reality, or you don’t.

But even if we are prepared to accept Coase’s reciprocal-harm model as an axiom (in order to sidestep truth and proof questions about the model), we still have an even more important question to address: what is the scope or domain of Coase’s axiom? Does the reciprocal-harm model apply only to economic harms, to involuntary harms more generally, or to all harms? I will address this deeper question in my next post …

[1] Robert G. Brown, Axioms (2007), https://webhome.phy.duke.edu/~rgb/Philosophy/Axioms/axioms/ [https://archive.ph/SrpLc]. See also Yuri Balashov and Alex Rosenberg (editors), Philosophy of Science, London and New York: Routledge (2002), pp. 129-131.

I mentioned in a previous post that my latest work-in-progress “Coase’s fable” is a follow-up to two previous papers I wrote, one titled “Coase’s parable”; the other, “Modelling the Coase Theorem.” Now, as a follow-up to my follow-up (!), I am going to address two additional research questions in my fable paper based on some of the feedback I received this past weekend at the University of Austin:

1. A theorem or an “axiom”? It was the Chicago economist George Stigler who credited Ronald Coase with developing a “theorem”: Coase’s insight about costless bargaining. My focus, by contrast, is on the underlying premise of this so-called theorem — specifically, on Coase’s insight that harms are a reciprocal problem. I will therefore explain why we should refer to this novel insight as an axiom.

2. What is the domain or scope of Coase’s axiom? Next, I will explore the domain of Coase’s reciprocal-harm premise. Does the reciprocal-harm model apply only to economics harms (e.g. so-called “spillover effects” generated by individuals and firms); does it apply to involuntary harms more generally (e.g. cases of mere negligence); or does it apply to all harms?

Stay tuned, for I will further address both of these key questions in my next two posts …

1. Interview with Tyler Cowen, prolific author, globetrotter, and “information monster” extraordinaire.
2. Interview with Alex Guerrero, political theorist and author of Lottocracy (pictured below).
3. Interview with Timothy Snyder, the professor who cried wolf.

That is the title of the paper, available here via SSRN, that I will be presenting this weekend at the Winter Institute for the History and Philosophy of Economics at the University of Austin (UATX). My paper is an updated version of two previous paper I wrote: one titled “Coase’s Parable,” which was published in the Mercer Law Review in 2023; the other, “Modelling the Coase Theorem,” published in the European Journal of Legal Studies in 2013. In my updated paper, I revisit Ronald Coase’s cattle trespass hypothetical and explore the origins of his counter-intuitive insight that harms are a reciprocal problem, an idea that I now call “Coase’s axiom.”

This weekend, I will be attending and presenting my work on Ronald Coase, who is considered the founder of “law & economics,” at the Winter Institute for the History and Philosophy of Economics at the University of Austin (UATX), a private non-profit university founded in 2021 whose motto is “the fearless pursuit of truth.” Stay tuned. I will provide additional updates soon.

How do our Anglo-American common law principles inform social contract theory? Would any of the three fictional social contracts of Hobbes, Locke, or Rousseau, for example, be enforceable from a purely legal perspective? Recall from my previous post the four common law elements of legally-enforceable agreement: A. offer and acceptance (mutual assent), B. consideration, C. capacity, and D. lawful purpose. With this legal background in mind, below are my tentative thoughts:

A. Regarding the first element, can there really be mutual assent in the state of nature? Alas, all social contract theorists just assume the existence of voluntary mutual assent. But in truth, we really don’t know if either the offer of the social contract or its acceptance was, in fact, voluntary or, what is more likely, if they (offer/acceptance) were made under duress. After all, when you stop to think about, how can our dire situation in the state of nature — a state of war, according Hobbes and even Locke — not be a state of duress? Also, since the social contract is a pre-political instrument — it was supposedly negotiated in the state of nature — then who exactly is the “offeror”? In other words, even if there was mutual assent, the social contract looks more like a non-enforceable oath than a “contract”!

B. Next, regarding the second element, consideration is a legal doctrine that helps us distinguish legally-binding and enforceable contracts from “mere promises” or gifts, which are not enforceable, and for this crucial element to be met, each party must give up something of legal value — like money, goods, or services — to the other. In addition, a promise to refrain from acting (forbearance) is deemed something of legal value under the doctrine of consideration. In the case of the social contract, we are supposed to be giving up our natural liberty in exchange for protection from the state, but this observation begs the question, is our natural liberty in the state of nature really a God-given pre-political right (i.e. we have a moral right to enjoy our natural liberty) or is it just an empirical description of the state of nature (i.e. we can do whatever we want in the absence of a duly-established government to enforce its laws on us)? And either way, how much liberty did we really have in the state of nature?

C. Regarding the third element, capacity refers to a person’s ability to form a binding contract: they must be of sound mind amd of legal age; they must understand the terms and consequences of the agreement. But what about children and non-human animals? Does the social contract apply to them? As it happens, contract law allows minors to rescind their contracts when they reach the age of majority, but how does one opt out of a Hobbesian or Lockean or Rousseauian social contract once it comes into play? On the contrary, if there is one thing that social contract theorists of all stripes have in common it is this: they do not allow anyone the right to opt out of the social contract once it is formed!

D. Lastly, regarding the fourth element, an agreement is void and unenforceable if its purpose or subject matter is immoral, fraudulent, or against public policy, or if injures a third party. On this note, what if the so-called “social contract” were better seen, not as a legitimate deal among equals to keep the peace, but as just a glorified form of extortion: your liberty or your life!

Point of order: However the substance of the so-called “social contract” is described (i.e. as extortion or a legitimate deal), my tentative observations above are just a short sketch of a more formal paper that I am working on. In the meantime, I will conclude my series on “Social Contracts and the Law” with one last observation (for now): the term “social contract theory” is a misnomer to the extent it implies a master or single “social contract” that all social contract theorists agree on. In reality, however, it is better to use the term “social contracts” (plural), for there are as many strands of social contract theory as there are social contract theorists! As a result, instead of assuming we are dealing with one composite or master social contract, each of these proposed social contracts must be scrutinized on its own terms.

Is the so-called “social contract” of social contract theory a valid or legally-enforceable agreement? At common law, the four key elements of a contract are as follows:

• Offer & Acceptance (Mutual Assent): A clear proposal by one party (offeror) and an unconditional agreement to its terms by the other (offeree), showing a “meeting of the minds” or shared understanding.
• Consideration: Each party must give up something of legal value (a promise, an act, or refraining from an act) in exchange for the other’s promise or performance.
• Capacity: Parties must be legally competent (e.g., not minors, mentally incapacitated) to enter the agreement.
• Legality (Lawful Purpose): The contract’s objective must be legal and not against public policy.

What happens when we apply these four common law elements of contract law to the social contracts of Hobbes, Locke, and Rousseau? Stay tuned, for that is what we are going to do in my next post!

This past weekend I concluded my series on the paradox of politics, which I began in October of this year. Among the many political theorists we surveyed were Thomas Hobbes, John Locke, and Jean-Jacque Rousseau, all of whom are deservedly famous for developing a strand of political philosophy known as social contract theory. Although this influential political theory has many variants (see here, for example), a common thread is a fictional collective agreement or “social compact” in which individuals in a state of nature consent, either implicitly or explicitly, to surrender some, or even all!, of their natural liberties and freedoms to the government in exchange for protection, order, and the maintenance of property rights. Although social contract theory has played a pivotal role in modern political philosophy, does good political philosophy make for bad contract law? More specifically, what happens when we view social contract theory from a purely legal or common law lens? What, in a word, is the legal status of the social contract, and does the answer to this question depend, in turn, on whose social contract we are talking about? Would any of the fictional social contracts postulated by Hobbes, Locke, or Rousseau, for instance, be legally valid or enforceable under modern contract law doctrines, and if so, what would constitute a material breach of the social contract, and what would the proper legal remedy be? These are just some of the questions that I will explore starting tomorrow (17 December).