The Coase Theorem Is Alive and Well in East New York

Courtesy of Colorlines and @sandraholla, I came across the above video. In it, a resident of East New York stands in front of a Banksy street art piece that popped up in his neighborhood, and demands that people pay him $20 to take a picture of it.

It is a little unclear how this is to be enforced. At some parts of the video, the man says he would be happy to tear the piece apart, but that seems partly a point about how little he values it and partly a threat of what he might do to it if a picture is taken without the necessary payment. Let’s assume — as seems plausible — that basically the guy is saying he wont move out of the way of the piece unless he is paid $20. (You can also assume that he will just break the thing without the payment. It doesn’t really matter. The point is, he has the ability to prevent the taking of the picture.)

As this is a public sidewalk, the property rights appear to be clear enough. He is certainly allowed to stand there if he wants, even if that blocks this Banksy piece. However, him blocking the Banksy piece imparts an external cost on those who would like to take a clear picture of it, i.e. they are prevented from doing so.

So how will this be worked out? Well the Coase theorem (which Coase himself was not fond of) suggests that the two parties here can privately bargain over the externality caused by this man’s right to stand in the way. If standing in that spot is worth more to the man than the person wanting a picture is willing to pay to have him move, then he will continue to stand there. If getting the man to move out of the way is worth more to the picture-taker than standing there is worth to the man, then the picture-taker will be able to pay enough to the stander to get him to move.

So according to the Coase theorem, this can be worked out fine. It’s just a matter of who wants it the most. What’s great about this video is that the guy standing in the way is explicitly applying Coase theorem reasoning to his demand for $20. He says:

You came from where you came from to take that picture. Twenty dollars aint worth that for you? […] It is worth more to you that this is here than to me. If you want to take a picture, then it is going to cost something. […] I could throw the bike against the wall and that shit will crumble up. You want to take pictures of it crumbled up? It don’t matter to me. What does it matter to you? […] Get the fuck out of here if you don’t want to buy. Bye. That means you don’t give a fuck about the artist.

And the man is exactly right. The amount of fucks given by the picture-taker about the artist is apparently less than $20 worth of fucks. Meanwhile, the value of standing in the way is apparently worth at least $20 to the man doing so. Therefore, this externality was efficiently handled through private bargaining, and we have here a Coase theorem success story.