Update: I added a comment on the post to clarify why I don’t think that having seniors stay at home is the correct Coasean solution. In short: social isolation has high costs!
Bryan Caplan has an interesting post on COVID and reciprocal externalities. Caplan starts off with the straightforward Coasean statement: “Yes, people who don’t wear masks impose negative externalities on others. But people who insist on masks impose negative externalities, too.”
For those not familiar with Coase’s 1960 article, one of his fundamental insights about property rights is that when property rights are not clearly defined, both parties can be imposing costs on one another. The externalities are reciprocal, not just in one direction. The efficient outcome, when bargaining is not possible, is to allocate the property right such that the “least cost avoider” is the one that adjusts their behavior. In other words, you allocate the property right to the party who would obtain the property right if bargaining were possible.
But Caplan uses this Coasean framework to come to the opposite conclusion that I would. Why?
Here is Caplan’s hypothetical example:
Is the cost of wearing masks ever actually lower than the cost of enduring COVID exposure? Definitely. Suppose ten healthy young people all work in an office from 9-5 on weekdays. Once a week, an immuno-compromised senior citizen stops by for five minutes. The unmasked workers definitely impose a tiny negative externality [on] one senior. But if you require everyone to wear masks all the time, you impose a large negative externality on all ten young workers. The efficient outcome would probably be to tell the senior to stay home if he’s nervous.(Emphasis added)
My disagreement with Caplan comes down to his claim that the externality imposed on the senior is “tiny” and the externality imposed on the workers is “large.” Wearing a mask is a very small inconvenience. Perhaps we didn’t think so a year ago, but most of us now habitually do it without a second thought. It’s inconvenient, but not “large.” And an elevated risk of death hardly seems tiny to me.
But must we just quibble about “tiny” vs. “large”? Here’s a way to cut to the chase: use willingness to pay.
Let’s assume that the senior is not too senior: 60 years old. According to the CDC’s best estimate, this gives them a 0.5% infection fatality rate, and according to Viscusi’s estimates their VSL is about $8.5 million (these numbers are derived from WTP estimates, so we’re already playing in the right sandbox). Thus, if constantly being around unmasked young people gives you a 100% chance of being infected, the implicit cost to the senior is $42,500. If it gives you a 50% chance of being infected (probably the minimum required for herd immunity), then the cost is $21,250.
So here’s the question: would these 10 young people each be willing to chip in $2,000-$4,000 each for the right to not wear masks around this senior citizen? My guess: probably not!
What if our senior citizen is even more senior: 70 years old. Now the IFR climbs to 5.4%, according to the CDC, while the VSL is not much lower at $6.4 million. The implicit cost now is $345,600 at 100% risk of exposure, or $172,800 at 50% risk of exposure.
Would our 10 youngsters be willing to pay $17,000-$34,000 for the pleasure of not wearing masks? My guess: highly unlikely. My proof is that most of us are willing to under go a paltry misfortune to ourselves and voluntarily wear masks anyway. We do it for free! There are a few mask grumblers I have encountered on the internet, but I highly doubt that their grumbling would rise to the level of paying thousands or tens of thousands of dollars.
Furthermore, I don’t think his example is exactly right between the ratio of young, healthy people to old, infirm people is probably not 10:1. The percent of the population with potential COVID comorbidities is something like 45%, including about 20% of very young adults! Perhaps that definition of comorbidities is too expansive, but about 21% of the adult population in the US is over 65.
In Caplan’s terms, I would argue that the inconvenience of wearing masks is a $2 problem. For many, it seems to be a case where there is “a disconnect between how we feel and WTP.” You may feel like mask-wearing rules (either private or governmental) are a violation of your liberties, but you’d probably pay closer to $2 than $2,000 to avoid it.