Coase, Clotheslines and Climate Change
In Tuesday’s Wall Street Journal, Anne Marie Chaker had a great article on conflicts between neighbors about unsightly clotheslines. On one side, gated community members armed with restrictive covenants:
“This bombards the senses,” interior designer Joan Grundeman says of her neighbor’s clothesline. “It can’t possibly increase property values and make people think this is a nice neighborhood.”
Ms. Taylor and her supporters argue that clotheslines are one way to fight climate change, using the sun and wind instead of electricity. “Days like this, I can do multiple loads, and within two hours, it’s done,” said Ms. Taylor. “It smells good, and it feels different than when it comes out of the dryer.”
I loved this story. In part, it’s because I teach the Coase theorem to my first-year contracts class using the canonical clothesline story. In that story, homeowners must avoid the damages done by a polluting factory. The “surprise” of Coase, of course, is that the homeowners might band together to buy the factory a smoke-scrubber instead of individually buying laundry machines, reaching the efficient outcome regardless of law. It’s a moral story about the ineffectiveness of legal regulation, the importance of setting default rules so as to avoid transaction costs, and the power of a simple example to frame a debate about contracting.
Here, of course, in a sense that homeowners have already banded together to contract around the law, which would have provided them a common law right to hang laundry out to dry. That contract is the homeowners’ association agreement. Its existence suggests that signatories believe that they will reap more than $200 each (the asserted financial benefit for manual drying) by committing not to dry outside.
But the right to dry movement responds: such calculations ignore the larger systematic benefits to air drying – primarily, a reduction in carbon emissions. That is, you could imagine this story modeled as a tragedy of the commons problem (global warming) created by a tragedy of the commons solution (contracting to increase property prices) to a tragedy of the commons problem (that any individual landowner has incentives to air dry but if all air dry the neighborhood looks terrible). It is Coase on top of Coase, all the way down to the turtles.
But wait, there’s more! If that such laws are passed, doesn’t Coase suggest that homeowners associations could “bribe” right to dry advocates not to hang clothes by giving them a piece of the increased values of homes that result from electric dryers, either in the form of cash or carbon credits, or both. (Presumably, cash is the better choice.)
Whew! Everyone walks away a winner, no matter what the happens to the law. And to think that some people think that law professors aren’t sufficiently practical.