张五常作品

(a) The student is expected to run down the standard divergence-between-private-and-social-costs argument and show how society may gain or lose as a result of this new law.

It is virtually impossible to show whether the social gains are greater or smaller than the social costs in this case, because there is no guideline to properly estimate these gains and costs.  When people are not asked or not required to pay, as they do in the market, any such estimate is not reliable.

(b) The relevance of the Coase Theorem here is that if the right to smoke or the right of not getting health damage from smokers is clearly delineated, then market transactions between smokers and non-smokers would occur to settle the divergence.  However, given the presence of transaction costs—in this case very high indeed—such market transactions would not occur.  The outstanding students, however, would perhaps point out that some restaurants choose to allow smoking, while some prohibit smoking, based on their respective judgements on whichever smoking policy would generate a higher income.  In this case, the divergence between private and social costs would in fact be handled through the market, requiring no imposition of the no-smoking law.

(c) The government’s defence must be the costs of no driving being higher than the gains from no emissions.  However, since such estimates are also virtually impossible, whatever the government says would have more to do with politics than economics.  No politicians in the present world could expect to survive in their positions if they advocate a law prohibiting driving.