Coase v. Pigou: A False Dichotomy?

The typical introduction to Coase seems to be framed as an alternative to a Pigouvian tax. This seems a bit unfounded to me.

The Coase theorem may work well as an alternative to legal/court action (in a small and local sense), but in the case of its opposition to a more generalized Pigouvian tax, its primacy is less clear. Take, for example, a standard Pigouvian tax: the carbon tax. A condition for an effective Coasian solution is property rights. But how do you assign property rights in the case of global atmospheric pollution? There is also a condition that costs are generally known* by the affected parties. But with the sweeping and invisible effects of global warming, how is the damaged party supposed to both be aware and able to determine the costs to themselves? Are they aware of the difference in their medical bills, food costs, insurance premiums?** In addition, there is difficulty in achieving the cooperation of affected parties. Though most global warming is a result of rich countries’ actions, the ramifications are most felt by people in poorer nations or poorer areas of polluting nations. Though these affected may be willing to pay in negotiations, they are far from able. Furthermore, the real victims are the one who will inherit a damaged earth; do we expect the unborn to mobilize in their opposition?

It seems unlikely that Coase himself would universally oppose a carbon tax (or he'd at least acknowledge the subtleties of each argument). We acknowledge that a Coasian solution works best when the parties involved are small, yet a Pigouvian tax is almost never implemented on just a handful of local actors. A Pigouvian tax is generally seen in a larger national context. It may even be that when Coase’s conditions are least likely, that a Pigouvian tax is a type of Coasian solution. In class we certainly acknowledged this, but I wanted to explicitly state it.

*Though with Coase individuals to not have to precisely calculate the costs (like they do with Pigou), they do need to be aware of the difference between a “bad” and “good” deal.

**There are also monetary benefits of climate change on the general public, such as cheaper energy. No matter who is doing the calculation, it’s a difficult process. However, the general point is that in this case the government may do a better job in measuring costs than the private individual. This is further complicated by the global nature of global warming.