Of Coase and Cattle: Dispute Resolution Among Neighbors in Shasta County

Abstract

This article reports the results of an investigation into how rural landowners in Shasta County, California, resolve disputes arising from trespass by livestock. The results provide an empirical perspective on one of the most celebrated hypothetical cases in the law-and-economics literature. In his landmark article, "The Problem of Social Cost," economist Ronald Coase invoked as his fundamental example a conflict between two neighbors- a rancher running cattle and a farmer raising crops. Coase used the Parable of the Farmer and the Rancher to illustrate what has come to be known as the Coase Theorem. This unintuitive proposition asserts, in its strongest form, that when transaction costs are zero, a change in the rule of liability will have no effect on the allocation of resources. For example, the Theorem predicts that as long as its admittedly heroic assumptions are met, the imposition of liability for cattle trespass would not cause ranchers to reduce the size of their herds, erect more fencing, or keep closer watch on their livestock. The Theorem has become the most fruitful, yet most controversial, proposition in law-and-economics. Coase himself was fully aware that obtaining information, negotiating agreements, and litigating disputes are all potentially costly, and that thus his Parable might not portray accurately how rural landowners would respond to a change in trespass law. Some law-and-economics scholars, however, assume that transaction costs are indeed often trivial when only two parties are in conflict. Therefore, these scholars might assume that Coase's Parable faithfully depicts how rural landowners resolve cattle-trespass disputes.