Well now this gets more complicated. The issue here depends on whether that land next to the factory was previously unowned or not. Provided that the factory owner was the first one to construct his factory on the unowned land, he may have gained rights to pollute the neighboring land assuming it was legitimately homesteaded.
Right, that's the problem. "The polluter pays for his damages" seems really simple and elegant (the Pigouvian system). You almost think, "oh, it's that easy!" Well, it's not, Coase rained on that parade. And the idea that someone who pollutes might acquire the right to pollute and then some guy can't use his property the way he always wanted to down the road is much less intuitively appealing.
Normally, you get rights to someone else's land through usage that is directly adverse to them. It has to be something a person would see, know about, and choose to ignore. But pollution can be invisible. And the idea that someone might gain free reign to pollute simply by nobody noticing is not very attractive.
Again, it's a hard problem. No system known (other than pure authoritarianism with a dictator who really hates externalities) handles it well.
Someone generally would have only acquired the "right to pollute" in one of two ways:
- the land being polluted was unowned (any government land is effectively unowned)
- the polluter made a contractual agreement with a landowner to be able to pollute
So how does that then become "some guy can't use his property the way he always wanted to down the road"? It either wasn't his property yet, he agreed to the pollution, or the pollution is a rights violation. (He owned the property before the pollution occurred, therefore no "right to pollute" actually exists.)
Pollution might be invisible but it isn't undetectable. Technically the new homeowner should be evaluating the land he is settling to establish a baseline level of pollution to compare with any future increase. This might be something handled at a larger scale of a property management company having this done at the same time sites are being checked for sinkholes or whatever. Also, what may be more practicable and how
de facto pollution law is handled would be monitoring polluters at the source. What sort of arrangements would evolve from millions of people and firms I can't accurately predict, but I think we can get an idea.
Which security provider would you choose to pay for, one who forced industrial firms to comply with pollution monitoring and good manufacturing practice or one who let it slide? I'm not claiming the world will suddenly be paradise, but I think that when people have a choice, they would choose firms that do punish property rights violations like pollution (obviously other factors to consider as well).
Maybe a hypothetical benevolent dictator is going to have advantages at some point, but as a whole dictators tend to not be benevolent and even when they are locktight on one issue they fall down on many others. There are two main reasons why we say that a free market in law is better regarding pollution compared to state systems:
- Rights violations would tend to be compensated by payment to victims, not fines to some bureaucratic EPA. This is just part of the broader problem with authoritarian or centralized legal systems.
- The same incentive problem that occurs with temporary, democratically-elected rulers happens with government "ownership" of land. When land is rented to a logging or mining firm, rather than them having to buy it, forests are clear cut or mountains are stripped right off. Even when laws are made against these practices,
they're ignored.
There's all sorts of
evidence of state "solutions" failing and privatization suddenly curing environmental problems.
You're confusing what I am talking about with a "Pigovian system". Pigou suggests a tax. Necessarily a tax involves a government, and the socialist calculation problem is no less insurmountable in the case of environmental policy than in any other. A main point in Block's
refutation of Coase (and Demsetz) is that psychic profit is ignored, a very common mistake for those with the mentality of central planners.
