Roy Cordato's "Austrian" critique of coase on social cost

In his book on Austrian welfare economics, Roy Cordato presents a scathing criticism of the Coasean approach to making judgments in tort cases. His criticism claims that the Coasean approach is both unrealistic and normative. Moreover, it would introduce uncertainty, thereby reducing individuals' freedom in pursuing their goals through the exchange process. To avoid all of these problems or at least to better deal with them, the economist who is interested in giving advice to judges ought to advocate a rule of strict liability regarding invasions of real (i.e., material) property. He claims that this rule is derived from Austrian economics. This paper, which takes a "different" Austrian perspective, makes several arguments against Cordato. First, it argues that his recommended rule would not achieve the goal that he sets for it. It would increase the freedom of some people while reducing the freedom of others in pursuing their goals. Second, it argues that his criticism of Coase is misplaced. Contrary to Cordato's claim, Coase has not advocated day-to-day interventions in the market system based on benefit-cost calculations that assume general competitive equilibrium. On the contrary, like the Austrians, he has emphasized the difficult knowledge and calculation problems associated with this. Also, he has pointed out the preponderance of empirical evidence against such interventions. Moreover, Coase's recommendations do not concern day-to-day interventions at all. Rather, he has been concerned with the institutional structure, most especially with the initial delimitation of rights. This concern, which implicitly takes account of uncertainty, immunizes Coase's analysis from Cordato's uncertainty critique. © 2000 Kluwer Academic Publishers.