Coasian Crowdfunding

 One of the central insights in Ronald Coase’s The Problem of Social Cost is that, because costs and opportunity costs are equivalent in accounting, it doesn’t matter who is made liable for compensating an externality. The best way to understand this is via example. To use Coase’s; imagine a cow rancher and crop farmer share neighboring plots of land. Cow ranching has a negative externality on crop farming because the cows eat some crops. Say the marginal cow eats $5 worth of crops. If the cow rancher is made liable by the government then he has to pay this extra $5 if he wants to add that cow to his herd. Even if the government takes no stand in the situation, however, the cow rancher will still have to pay that $5. The crop farmer can no longer force the cow rancher to hand over the money, but he can still exert influence on his balance books by offering up to a $5 payment if the rancher doesn’t add that next cow. The farmer is willing to do this because he can avoid $5 of crop damage. Just as before, if the rancher wants to add another cow to his herd, he has to give up $5.

This counter-intuitive idea inspired an idea of my own to help resolve global externalities: Coasian Crowdfunding. The idea is to impose costs on externality producing corporations by offering them money if they scale back production closer to the socially optimal level. By crowdfunding what are basically carbon-offset payments from people all around the world, we can force Exxon to incorporate the social cost of carbon into their accounting by forcing them to forgo this large prize if they want to continue polluting. 

This strategy can overcome many of the problems facing coasian bargaining. The assignment problem is lessened because people are incentivized by their private value on carbon offsets, which is easy to know for them. There are still challenges in identifying which corporations are responsible for how much pollution, but at least there are many fewer of them. The free-rider problem is still somewhat of an issue. Since everyone enjoys an improved global climate regardless of whether you pay, it can be personally beneficial to just let others pay. This sort of online crowdfunding has proven resilient against free rider problems, however. Tens of billions of dollars flow through patreon and twitch donations. Fans of certain shows pay money for video content that is posted for free on YouTube. There are some excludable goods like early viewing or extra content though. Similarly, our carbon-offset crowdfund could provide people with a green-check NFT that donors can use to signal how much they care about the environment. Because opportunity costs are the same as costs, the power is in our hands to make carbon producers pay for the damage they do to the global environment.