Wind Power

New York Times editorial "Wind Power" (January 8th, 2010), falsely prescribes a socially inefficient solution to an economically simple problem. Specifically, the article describes a years-long disagreement over property rights between three groups: developers of "Cape Wind" a wind-power power farm in Massachusetts, Indian tribes with ancestors buried on the proposed site, and homeowners afraid of losing their view. The mistake the article makes, however, is that it suggests the best solution to the disagreement would be for the interior secretary to take the reins and decide whether or not the wind farm is built, as he has threatened to do:

We hope the administration can persuade the various sides to quickly reach a compromise that preserves the core of the project. If not, Mr. Salazar [the interior secretary] can and should decide on his own to allow Cape Wind to proceed.

Economists would have a different solution to such haggling over who has the right to what: assign property rights, and let the interested parties work out the details. In particular, Corrections would suggest that rather than make the decision, the interior secretary should give indisputable ownership of the land either to the developers or to the protesters. Then, if the land is given to the developers, protesters could pay the developers not to build the wind farm, up to the point that they are indifferent. Or, if the land is given to the protesters, developers could pay them for the right to use the land for a wind farm, up to the point that they are indifferent between building one or not. In economic terms: the Coase Theorem allows us to claim that no matter what the initial allocation of property rights, the outcome after bargaining between the interested parties will be economically efficient. The interior secretary may make an inefficient decision. However, if he simply assigns property rights to one of the interested parties, he should expect an efficient outcome.