The Reciprocal Trap

Diary Entry: January 11, 2025

I’ve been thinking about “harm” all day. It’s the most fundamental concept in law — A hits B, therefore A is bad, and A must pay. It’s linear. It’s moral. And Coase completely destroys it. And I have to submit the paper by the 19th?

This is where the disconnect between lawyers and economists feels most violent. I’m trying to articulate why economists seem so comfortable invading the legal field, while lawyers seem so helpless when trying to speak economics. It comes down to this reciprocal nature of the problem.

To a lawyer, a factory smoking up a neighborhood is a nuisance. The factory is the active aggressor; the neighbors are the passive victims. But sitting here with The Problem of Social Cost, I’m forcing myself to see it through Coase’s eyes. It’s not aggression; it’s a conflict of interest over a resource. The factory needs the air to produce goods; the neighbors need the air to breathe/sleep. Both are “uses.” To stop the factory is to harm the factory owner (and his employees, and his customers).

It’s a terrifying thought for a lawyer because it drains the morality out of the equation. It turns justice into an allocation problem.

I keep going back to the “cave” example. Discovery gives you legal title, but it doesn’t guarantee you keep the cave. If I value the cave more than you — if I have a billion dollars and you are drowning in debt — the cave flows to me. The law determines who gets the money, but the market determines who gets the cave.

This is why economists are better equipped to talk about law than vice versa. They possess a metric — the price mechanism — that can theoretically measure everything. They can quantify the “harm” to the factory and the “harm” to the neighbor and balance them to find the social optimum. Lawyers don’t have a unified metric. We have “justice,” “equity,” “tradition” — squishy concepts that don’t fit into a formula.

But — and this is the big “but” I’m wrestling with — does that mean the economists are right?

Coase admits that the price mechanism is a tool for efficiency, but he also implies that life is more than efficiency. The problem is that when lawyers try to do “law and economics,” they usually just capitulate to the economics. they surrender the one thing they are supposed to be experts in: the non-economic values.

The reciprocal nature of harm is an economic truth, but is it a legal truth? If we treat every legal right as a commodity that should flow to the highest bidder, we might maximize wealth, but we might lose the “law” part of the equation.

I think Coase understood this better than his disciples. He wasn’t trying to replace law with economics; he was trying to show lawyers the cost of their decisions. He was saying, “Fine, protect the neighbor, but know that you are destroying value elsewhere.”

The equilibrium shouldn’t be economists taking over the law. It should be lawyers learning to use the economic toolkit without losing their soul. We need to be the ones to say, “Yes, it’s efficient to let the factory smoke, but we are going to stop it anyway because of X, Y, and Z.” But we can’t make that argument if we don’t understand the efficiency argument first. We have to understand the reciprocal trap before we can choose to step out of it.