A half-century earlier, when Robert Moses had been in his prime, New York state wouldn’t have needed to depend on private developers, if only because Moses would have had the authority to shape and finance the project to his own liking. (At the same time, Moses wouldn’t have invested in a train terminal because, as The Power Broker makes clear, he believed that cars were the future and trains were the past.)
But in the absence of anyone with anything similar to Moses’ power, the Two Steves [Steve Ross and Steve Roth] faced the burden of clearing all the hurdles that had been erected in the power broker’s wake. Legislators had enacted new environmental regulations, established landmark standards, empowered community boards, created new review processes and more—all in an effort to diffuse power to protect the public interest. Years later, New York Magazine would dub Ross, who would go on to develop Hudson Yards, as Moses’ successor. But, as would become evident as Penn Station remained unreconstructed, the truth was that he wielded a fraction of Moses’ power.
This is from Marc J. Dunkelman, “This is Why Your Holiday Travel Is Awful,” Politico, November 29, 2019. HT2 Tyler Cowen.
In this long article, Dunkelman lays out the history beautifully. He seems to see the issue, though, as being whether to have a strong politician/urban planner like Robert Moses who can trample on people’s rights or to have a whole lot of government agencies and citizens’ groups that can use smaller amounts of power to trample on people’s rights. When I read the piece, I can imagine some nice Coasian bargains that could be reached if government had close to zero say and owners of private property were free to contract.
READER COMMENTS
Rob Rawlings
Dec 24 2019 at 9:33pm
Totally off topic but I’d like to take a moment to express my thanks for what you and the other EconLog contributors do to keep the world a marginally more sane place.
David Henderson
Dec 24 2019 at 10:23pm
Thanks so much, Rob. That’s very gracious of you. Happy holidays.
Dylan
Dec 25 2019 at 8:35am
I have to ask, why do Coasian bargains seem to be so rare, even when property owners are free to contract?
I have a neighbor that likes to play music very loud, when she does so, we can’t properly enjoy our space, it’s too loud to sleep, watch TV, or even read. I’ve thought about paying her to sound insulate her place, but besides being very expensive (something I don’t have the funds for at the moment), and the fact that it may not even be effective, there’s also a fundamental feeling of why should I have to pay thousands of dollars that I don’t have, because someone else is being (in my opinion) rude? I doubt that it has even occurred to her to offer any kind of bargain, because she sees playing music at a loud volume as her right of being able to enjoy her private space. Instead, we’ve come to an uneasy truce based upon some basic shared social custom. She keeps it down most of the time, and we try not to complain when she plays loud on the weekends or if she’s having people over, even if it means we don’t get much sleep on those nights.
From conversations with friends and family around the world, these kinds of neighbor disputes seem more common than not, no matter if you’re in a high density apartment complex like mine, or in a rural area where your next neighbor is two hills over. Yet, despite the seeming ease of a Coasian bargain when there are only two parties, I’ve yet to find a single person who has done so. And the few times I’ve suggested this approach to settling disputes that were causing large amounts of stress, the people I’ve suggested it to have been appalled at the suggestion. Why? Given this difficulty in seemingly ideal situations, I’m fairly skeptical of Coasian bargaining to scale in larger or more complex transactions.
I know I come off as critical in a lot of my comments here, but I want to echo Rob and say thanks to all of the writers and staff here. I appreciate the work that you do, and I learn things on almost every visit, even if I don’t always agree.
Happy holidays everyone!
David Henderson
Dec 25 2019 at 2:36pm
You write:
It’s a good question to which I don’t have a good answer. Indeed, look at this earlier post I wrote on a months-long interaction with a neighbor that ended well but did not at all fit the Coase model.
I might have the start of an answer: Is it possible that people are very unbargaining-like with their own homes whereas business people, out to make a buck, tend to put away other considerations? It’s kind of like the Becker model of discrimination. People in their own homes don’t think of themselves as profit-maximizers; people in their businesses do. So even though my own experience is like yours, I think there’s a reasonable probability that Coasian bargains would work with the New York City case.
You wrote:
Thank you so much, Dylan. And happy holidays to you too.
Dylan
Dec 26 2019 at 11:54am
Thanks for the link to the earlier post, interesting story and some insightful comments as well.
When I wrote that yesterday, I hadn’t had time to read the Politico piece yet, but now that I have, I actually see echoes of Coasian bargaining throughout the process. A lot of these agencies and environmental review boards and the like could be seen as simply a way of representing interest groups that would otherwise be too diffuse to collectively bargain. There’s obvious differences, in that some of the agencies with veto power don’t really have anything on the line, so a veto is all benefit and no cost. Yet, even when we’re just talking private businesses, it appears hard for parties to come to a deal (as we see in the MSG/Dolan part of the story). When you need to coordinate among multiple private businesses, the incentive to be a holdout in order to extract the most possible concessions for a large project would seem to be pretty great. The basic justification for eminent domain. So, I’m still skeptical that Coasian bargaining would improve the status quo dramatically when it comes to development.
The other thing that bothered me when reading the (long!) article, was that with all the mention of costs, there never was an explicit mention that a) our development costs are so much higher than the rest of the world, and b) that those costs are largely attributable to the process that has been put in place. $83m just to build a pedestrian tunnel from Penn Station to Farley!
Jon Murphy
Dec 26 2019 at 12:14pm
Please allow me to offer a possible explanation (please let me know if I am too technical here. Forgive me, Dylan, but I do not know your background):
Whether or not a Coasian bargain takes place depends on transaction costs and benefits. However, since both costs and benefits take place in the future, it’s more accurate to say that the bargain depends on transaction costs and expected benefits. If the parties estimate that the costs exceed the benefits, then no bargain takes place.
Thus, if there is a systemic bias that causes people to misestimate the costs/benefits such that they tend to estimate that the costs exceed the benefits (say, a pessimism bias), then it may be the case that there are many Coasian bargains that do not take place because of misestimation of costs/benefits.
Dylan
Dec 26 2019 at 3:09pm
Hi Jon,
Thanks for the reply. That’s an interesting idea and one I had not considered. My first thought is why would it appear that they are more pessimistic when it comes to situations which we would otherwise consider an externality, but that pessimism does not seem to translate to other types of transactions? That obviously involves assumptions on my part about behavior that may or may not be true, but that’s what I came up with.
As far as my background, I’ve got a B.A. in Economics from a number of years ago now, but am otherwise a lay person. I found your explanation clear, although I do have one clarification question. You refer to “transaction costs” and benefits, and my recollection is that transaction costs are typically broken out as being separate from other costs? As an illustration, let’s assume that my neighbor not only annoys me with her loud music, but also the people on the other side of her, and the people above her and below her, and to some extent, even the people that live two doors down and the people across the hall from her. Let’s also assume that it would cost $10,000 to soundproof her apartment . The direct cost would be $10,000, and the transaction cost would be all the costs that would be associated with coordinating with different neighbors, figuring out how much each should kick in, avoiding free-riders, working with the problem neighbor, etc… We would only expect to see the project move forward if the expected combined benefit were greater than the expected direct costs + the expected transaction costs, right?
My own feeling on this is that we have strong, yet conflicting, beliefs about morality that make bargaining difficult. I think that of course I should be able to enjoy my apartment without having the walls shake. Yet, at the same time, when my in-laws complain about their neighbor, who calls the cops the once a year when they throw a big party with a live band on their 10 acre property in the woods…I totally side with the in-laws, and the neighbors just seem like they’re way too uptight. In general, we’ve got a strong belief that we have the right to enjoy our property in anyway we see fit, and if we’re doing so in ways that are within the general bounds of socially acceptable, we’re offended if someone tells us we shouldn’t or can’t do that. Yet, of course, lots of ways we can make use of our property, make it impossible for someone else to use their property in the way they want.
In situations like these, Coasian bargaining feels a little bit like paying a guy $10 to stop punching you in the face. I probably value not being hit in the face much higher than $10, but I’ll be damned if I’d pay that much to the guy doing it. The problem arises when both sides feel like their the aggrieved party, because then where do the negotiations start? My intuition would be, that a Coasian bargain is much more likely to happen when social custom clearly favors one party more than the other, but the other party has a much higher economic value. Say some kind of factory gets a $1m in benefit from moving next to a piece of land that’s been in a cattle rancher’s family for generations, and the factory will make the land unsuitable for cattle. We tend to have a strong incumbent bias, and also a bias against pollution causing industries, but if the cattle rancher only gets $10K worth of benefit from the land, and the factory owner realizes that they are the one that is in the position of needing to compensate the other party, then we’re in a good position to reach a deal.
Jon Murphy
Dec 30 2019 at 3:41pm
Yes, you are right. I was lumping all costs together, but that was not obvious from my comment. Sorry for the confusion.
Regarding the rest of your comment, I think you are generally right about morality and who is in the “right” interrupting the negotiation process. And all that is part of transaction costs, as I see it, preventing negotiation taking place. Which, to Coase’s point, means the initial allocation of rights matter a whole lot.
Dylan
Dec 31 2019 at 8:49am
Thanks for the response Jon. Glad you saw this, even though it took a few days for my comment to get released.
I think it is fair to include all of this in transaction costs, but doing so is going to naturally limit the practical applications. Agree that the initial allocation of property rights is crucial, but I think a lot of the examples where Coasian bargaining is proposed as an alternative to externalities, is when precise property right boundaries are hard to delineate clearly. On sound for instance, NYC has certain dBA thresholds, where if the sound measured inside the apartment is above that level, then the person making the sound is in violation (surprisingly hard to measure). That tries to take a King Solomon’s approach to the problem, and has the effect of giving a quasi-property right to sound up to a certain level in your space, and a freedom from sound above a certain level from your neighbors. But, once you’ve gone and defined that as the community standard, than I’m free to use the government as my enforcement mechanism, and have no need to otherwise bargain.
David Seltzer
Dec 30 2019 at 4:27pm
Jon, Well stated. That is the definition of the Coase Theorem. I was Grad student at University of Chicago GSB when the Coase Theorem was taught. It took the concept of low transactions costs and expected benefits to convince Friedman, Stigler and Aaron Director Ronald Coase was right. A local example of Coase applied. In 2008 there were a few empty foreclosed homes in our development. The banks were charged with maintaining the grounds as per HOA rules. Often they let grass and surrounding grounds become unsightly. As homeowners were concerned for home prices, they paid a local landscaper to mow and trim the grounds every two weeks. The per capita payments were acceptable and the homeowners benefited from property values being maintained in a non blighted neighborhood.
Christophe Biocca
Dec 25 2019 at 9:13am
Seems like there’s a bigger problem here, and it’s that no one seems to know what value to place on a “better grand central station” in a world where most of services that make use of it are largely operating outside of market pricing as well. The only sources of funding are private landowners mostly interested in the other stuff that would be built at the same time, governments operating on Keynesian-multiplier models (who would just as readily fund any project with similar spending and construction employment), and politicians spending funds to support their notion of aesthetics.
I also dislike the bait-and-switch in the article between the maintenance issues (sewage, rotting rail ties, etc.) and the need for a whole new building. These are separate questions, and while politicians love to mention one to justify the other, they’re mostly alternative ways to spend funds, not complements.
David Henderson
Dec 25 2019 at 2:38pm
Nicely said, Christophe. And, although I am one who almost always notices bait and switches, I missed this one. Good catch.
Thaomas
Dec 26 2019 at 6:32am
Moses was probably just responding to public demand for automobile v rail infrastructure based on the distorted incentives faced by automobile drivers who are not subject to Pigou taxes on congestion. Until these incentives change, infrastructure investment decisions will remain distorted.
David Seltzer
Dec 30 2019 at 4:33pm
David Henderson. In the last year, I’ve learned so much from you and the challenging comments from several of the respondents. Thank you. I look forward to 2020.
David Seltzer
Dec 30 2019 at 4:40pm
In the movie Motherless Brooklyn, Alec baldwin plays Moses Randolph. A thinly veiled depiction of the autocratic Robert Moses. If acting is making the imaginary believable, Baldwin nails it.
Comments are closed.