Farmer Brown v. Rancher Wyatt: Teaching the Coase Theorem

ABSTRACT

The Coase Theorem is a fundamental tenet of environmental economics and is taught to thousands of principles of microeconomics students each year. Its counterintuitive conclusion, that a Pareto optimal solution can result between private parties regardless of the initial allocation of property rights over a scarce resource, is difficult for students to understand. By using a mock trial that centers on a property dispute, students can be taught how the Coase Theorem works in practice with minimal preparation. The strong assumptions on which the Coase Theorem relies also can be included to show why the theorem may not hold. By using a unique, active learning technique, students will be more engaged and may have a better understanding of a difficult but seminal theory of economics.

KEYWORDS:

• active learning
• Coase Theorem
• mock trial

JEL CODES:

• A22
• D23
• Q30

Acknowledgments

The author thanks Chuck Skipton and Vanessa Baratta for their help and suggestions throughout the editing process.

Notes

1. According to Google Scholar, “The Problem of Social Cost” (Coase 1960) had 30,265 citations as of June 1, 2017.

2. Stigler later said, “I lamented afterward that we had not had the clairvoyance to tape it.” (Lyons 2013, unpaginated online document).

3. I have now performed this mock trial in six different principles of microeconomics sections and all have proceeded the same way.

4. In the event that the student body in question is unable to relate to a farmer vs. rancher dispute, a similar scenario can be used. For example, two siblings fighting over who gets to inherit a Corvette from a deceased family member or a person who wants to recline their plane seat vs. the person sitting behind them.

5. To make it easy for the jury to keep the positions straight, supply a farming hat for the farmer to wear, and a bandanna for the rancher to wear, or something similar. This is optional but will lessen the chances of a confused jury.

6. This is important. “Clever” students will point out a property line that gives even a small majority of the lake to either the farmer of the rancher.

7. It is useful to further motivate the setup by mentioning that many Western movies center on a property dispute of some kind.

8. To date, the most persuasive reason I have seen given was a rancher who said the farmer's crops will die without the lake, but if he (the rancher) was denied the lake all his cows will die, and cows matter more than crops. He easily won the case.

9. In the event the second party asked gives a lower valuation, the judge can first show that the economically efficient situation has already been reached, and then go through the case where the person with the higher value buys the lake from the person with the lower value.