Luo Biliang: A simple expansion of the interpretation of resource characteristics in the "Coase theorem".

Simple expansion of the interpretation of resource characteristics in the "Coase theorem".

Luo Biliang
  
my report is to make a simple extension of the "Coase theorem. The focus is on the characteristics of resources, which is an extension of the speech I gave at the annual meeting of institutional economics in Chongqing.
 
As you know, when I was in Chongqing, I once said one of Coase's basic ideas: if the transaction cost is zero, how the property rights are arranged is not important; if the transaction cost is not zero, the property rights arrangement is important. Because property rights arrangements determine transaction costs, and different property rights arrangements imply different transaction costs, Coase always wants to find more effective property rights arrangements. The idea I want to clarify today is that this is not enough and should be further extended to trading methods.
 
So, what determines property rights? We can discuss the problem in terms of the characteristics of goods, resources or products.
 
The first topic: Are you worried about the extinction of chickens? How many chickens are eaten every day in the world? The corresponding question is, why do whales and elephants become endangered animals? This is a question of resource characteristics. From the point of view of property rights arrangement, elephants are usually public ownership, chickens are almost private products, which is the property rights characteristics determined by the characteristics of resources. Elephant public ownership is not good, according to the way of dichotomy, let private ownership is efficient? Coase's enterprise theory is the dichotomy-either enterprise, or market, he does not say the middle.
 
Delaying from the characteristics of resources will inevitably involve the behavior ability of the property right subject. What are the characteristics of elephants? The individual is large, gregarious, and has a wide range of activities (as small as 40 square kilometers and as large as 3100 square kilometers). Do you dare to empower this elephant to you? Who knows where it will go tomorrow? Moreover, the life span can be as long as 100 years old. An adult elephant can eat 30-60 kilograms of physical objects, walk 3-6 kilometers a day, run up to 36 kilometers per hour, and have destructive behavior. Do you dare to ask for this thing? That's why I'm not planning on marrying a French actress. Therefore, this characteristic determines the different ways of acting subjects.
 
There were 3-40000 elephants in Zimbabwe in the 1970 s and 6-70000 in the 1990 s, with more than 100000 elephants now, but the number of elephants in Africa has decreased from 1.2 million to 600000 in the same period. Now Zimbabwe is allowed to kill 200 elephants a year, but Kenya lost 80% of its elephants in the 1980 s. The reason why there is such a big contrast is that Zimbabwe has implemented a completely different system from other countries in Africa, that is, a collective property rights system similar to ours, while in other parts of Africa it is mainly public ownership.
 
So we can conclude that resource characteristics have important property rights implications-classical theory says that private ownership is the most efficient of the institutional arrangements of various forms of ownership. But the conclusion just now tells us that private ownership is not efficient under all circumstances and under all conditions. The myth of private ownership must be broken. Not everything can be privatized everywhere. Because of this, the collective has the elephant, the private must have the chicken, this is the truth.
 
The second topic: the previous discussion is a single resource utilization. Furthermore, what changes will happen to the property right when the single resource is used together to multiple resources? For example, to whom is a piece of farmland allocated? In terms of the divisibility, exclusiveness and behavior of the property right arrangement, the most effective property right arrangement is to the farmers. Because of the divisibility of land and the exclusivity of farmers, China's rural reforms were successful at first, but why did they go wrong afterwards? We know that arable land yields are determined by a variety of factors, such as soil quality, seeds, fertilization, plant protection, irrigation, field management, and irrigation conditions vary from region to region. If it is efficient to implement household farming in the southern hilly areas, it is not necessarily efficient in the arid areas of the North China Plain. Because the yield of an acre of land in the North China Plain does not first depend on the quality of the land, but is more determined by irrigation conditions. Our next question is, are the farmland irrigation facilities divisible, exclusive and behavioral? If the three characteristics are met, it is a well for each farmer. Obviously, this approach does not have economies of scale, and the use of relatively more scarce water resources is very inefficient. It should be acknowledged that the scarcity of water in North China is higher than that of arable land. Therefore, most of the situations we see are that irrigation facilities are provided as public goods or club goods-so this is the reason why we see the widespread destruction of water facilities after household contracting. For this reason, I conclude that it may not be the best way to implement family management in arid plains, nor is it necessarily appropriate to provide irrigation conditions as a public good, and that intermediate forms of organization and their property rights arrangements should be sought.
 
Third topic: According to Coase's theorem, different property rights arrangements imply different transaction costs. The problem is that in the case of defined property rights, we find that over time, the original property rights arrangements imply very high transaction costs. What should we do? This will obviously face the "dilemma" between the stability of property rights and the efficiency of property rights. For example, the right to forest land. We know that it is very difficult to change the forest land after the right is confirmed, what should we do if the right has been confirmed? Therefore, from this point of view, for the situation that the right has been confirmed, or the property right has been defined, how to reduce the operating costs, or reduce the transaction costs, we need to do some further work.
 
Coase obviously didn't do much of this work, and Williamson didn't do much either. On the contrary, Williamson tells us that public green space or city squares should be provided by the government, because this thing has asset specialization, indivisibility, non-exclusivity and consumer uncertainty, and what is more troublesome is that it is very difficult to measure consumer behavior. That is to say, it is very difficult for the construction of the square to be operated by private individuals, and it is very difficult to move towards marketization.
 
My question is, must the government provide public green space? According to the Williamson paradigm to carry out the matching of property rights arrangement and property rights subject, will provide the government with sufficient reasons to "make mistakes. Therefore, further research should focus on reducing the scope of "public investment.
 
We see that there is a troublesome problem in the green square that consumption qualification cannot be exclusive. If a lady wears a beautiful coat, are you going to charge those "slouching" guys? Therefore, people have come up with a very "talented" way-to change the way of trading-to "walk the show" through the catwalk ".
 
Practice can teach us many things. I was once personally involved in planning the construction of a public square. Let's imagine: what are the characteristics of the square. What are the valuable properties of popularity? Commercial and real estate development value. Why can't we combine the development of green squares, shopping malls and real estate?
 
So there is a real case ("hanging green square" in Zengcheng City, Guangdong Province): first, plan, delimit the scope of the green square, and allocate shopping malls and commercial houses around the square. The following operations are: to induce developers with development rights, to exchange shopping malls for squares, and to flourishing squares with squares. As a result, a "win-win" market-oriented pattern has been formed-(1) developers have the enthusiasm to invest: green space protection can make commercial housing easy to sell and obtain rich rental returns in shopping malls;(2) the original residents are willing to replace and relocate: the living environment is good, the real estate can appreciate;(3) the merchants are willing to rent: good location, good environment and good popularity;(4) the citizens have a good leisure and shopping environment.
 
Therefore, we conclude that the government is not necessarily the best provider of public goods.
 
There is another example, but I can't continue to play with you. Because I'm running out of time. Thank you all.
 
[Luo Biliang, Dean, Professor, Doctoral Supervisor, School of Economics and Management, South China Agricultural University. This article is a revised version of the author's speech at the "Ronald Coase Thought Symposium" on December 29, 2013, with the title added by the editor]
http://www.china-review.com/eao.asp?id=33841
2014-4-5