Wednesday, October 03, 2012

The Coase Theorem, the Lighthouse and the Future of a Frank Lloyd Wright House in Arizona

A funky Frank Lloyd Wright house may be demolished in Arizona.  The owner of the property is free to choose to do what he/she wants with her property.  Historic Preservation laws do not apply in Arizona but the Coase theorem would predict that a Wright Home is a public good and those who would lose from its destruction should band together if they face low transaction costs and can overcome free riding to make a bid to purchase and preserve the private property.  The NY Times alludes to this point when it writes;

"So the other prong of attack is to find some preservation-minded angel with deep pockets who will buy it from the developer. Preferably today."

Let's not forget the Coase Lighthouse example. In a nation with 300 million citizens, will someone step up and use private funds to provide public goods and take this action solely due to self interest of enjoying owning a Wright House?

So, this Arizona case study provides a good test of how powerful are the 101 year old Coase's ideas in the year 2012.