My restatement of the Coase Theorem:
- If legal entitlements are well-defined, clear, and fairly easy to enforce, and
- If transaction costs are comparatively low, then
- Scarce resources will move to their most highly valued use.
It's something of a definition of sufficient conditions for economic efficiency.
If I have something, whether it is a painting, a car, my labour services, the right to make noise, or whatever, and if you want it, then:
if these two basic conditions of the Coase Theorem are satisfied, then whichever of us values that thing or service the most will end up with it, where value is determined by willingness and ability to pay.
But we need to have well-defined and easily enforced legal entitlements (or property rights) for this to work. Much of economic policy comes about because one or both of these conditions is not satisfied. Examples might include pollution control, traffic laws, and national defence. Raisins probably are not a good example (nor is milk, or chicken or pork or other agricultural commodity).
Horne involves a challenge to the forcible appropriation of large quantities of raisins by the federal government. The forced transfer is part of a 1937 program that requires raisin producers, in some years, to turn over a large portion of their raisin crop to the government so as to artificially reduce the amount of raisins on the market, and thereby increase the price. Essentially, the scheme is a government-enforced cartel under which producers restrict output for the market so as to inflate prices. The Hornes claim that the appropriation of their raisins amounts to a taking that requires “just compensation” under the Fifth Amendment.
This case, like so many, is a fight over legal entitlements. Once the legal entitlements are made clear, then people can make decisions that are more likely to be efficient (with the understanding that a gubmnt-enforced cartel is, in and of itself, extremely unlikely to be efficiency-promoting).
*As all my former students know, the Coase Theorem is named for the famous economist, Professor Theorem.