Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, December 17, 2004

Moral Outrage: Coase v. Inalienability

Nearly all law schools and economics departments teach something known as "The Coase Theorem", which states that so long as property rights are well-defined and enforced, and so long as transaction costs are low, then regardless of the initial assignment of property rights, scarce resources will move to their most highly valued use. The theorem is pretty much the same as Adam Smith's "invisible hand." However, by highlighting the importance of property rights and transaction costs, it has played an invaluable role in furthering the economic analysis of law.

And yet, as Alex Tabarrok points out at the Marginal Revolution, when it comes to getting into courses that are oversubscribed, students at NYU are not allowed to offer cash payments to someone already in the course (full story here). One student opposed the buying and selling of places in popular classes, saying that "... if the practice were approved by NYU, then poorer students would be at a disadvantage."

What a crock! What about the poorer students who would love to sell a spot in a class in order to get money to help pay the rent? They are clearly being disadvantaged by not allowing them to sell their place in the class.

The NYU vice dean has argued that spots in classes are not the students' property and therefore they don't have the right to sell them. This is pure sophistry.

As the famous article by Calabresi and Melamed taxonimizes, there are property rules (parties may buy and sell something), liability rules (you must pay compensation if you take something), and inalienability rules (no exchange is permitted, usually because of moral considerations). This vice-dean has single-handedly converted a property rule to an inalienability rule.

How long do you figure it will take for a black market to develop, as often happens in such cases?

And you have to love Alex's self-effacing tag line: "I have pioneered this approach even further. Students in my classes have been known to offer payment to get out. :)"
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