When It Comes to Enforcing Taste, It's Best to Tread Lightly

The New York Times, "Economic Scene" , July 13, 2000

All around the country, conflicts are brewing over aesthetics. Instead of tolerating sights they don't like -- from tacky porch furniture to innovative architecture -- more and more Americans are demanding a world free of "visual pollution." Appearance is getting the sort of regulatory scrutiny once reserved for public health and safety.

In Portland, Ore., you can no longer build a home whose front is less than 15 percent windows and doors or whose garage takes up more than half the facade. The goal, a local official suggested in response to critics, is to "put a stop to the ugly and stupid houses that we see going up."

New York City is revising its land-use code for the first time since 1961. The proposed Uniform Bulk Program establishes a design review committee and uses height limits to preserve the skyline. The new rules don't claim to be healthful or to preserve historic buildings. They're all about looks. "Everything proposed by the Uniform Bulk Program is entirely a matter of taste," wrote Herbert Muschamp, the architecture critic for The New York Times.

Suburbanites now take offense at their neighbors' paint colors, their window frames, even their backyard swing sets. And just about everywhere, residents are fighting new cell-phone towers, which can block views or just look ugly.

The push to expand the definition of "pollution" to include aesthetic offenses forces us to re-examine why and how we regulate the spillovers that economists call externalities. Should we really ban, tax or otherwise deter any action that has unpleasant effects on other people? After all, just about everything people do in society has spillover effects, many of them unwanted.

Ronald Coase of the University of Chicago addressed these questions in 1960, in "The Problem of Social Cost," an article that helped win him the 1991 Nobel Prize in economics. But the most relevant parts of that paper are the least noted.

The paper is most famous for what was later called the Coase Theorem. This is the idea that if making deals in the marketplace costs nothing, it won't matter how the law assigns liability. If a factory has the right to operate even if it pollutes, then people who don't want to breathe stinky air can pay the owner not to pollute. If, on the other hand, the neighbors have the right not to suffer pollution, the factory can pay them to waive that right. In either case, a deal will be made at the level that makes everyone as happy as possible.

But as Professor Coase would be the first to point out, we don't live in a world where deals are free. Gathering information, rounding up all the affected parties, negotiating contracts, monitoring pollution levels and so on are all costly. These transaction costs can make such happy deals difficult, though certainly not impossible.

In the real world, the way rights are assigned -- to polluters or to their neighbors -- does matter. That makes it important to assign them correctly. What principles should we use to get the best result?

Professor Coase's first insight is that pollution is not a simple matter of physical invasion or evil-doing. It is a byproduct of valuable actions. Preventing those actions would also be harmful. "The real question that has to be decided," he writes, "is should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm."

So if a Portland resident builds a house with a big garage door, people who find that facade unfriendly are harmed. But if the city forbids that design, making two-car garages impossible to build on many lots, homeowners who want garages are harmed.

The question, from a Coasean perspective, is which is the greater harm, and how should we avoid it? It's wrong to declare that invading someone's eyesight is by definition the action that should be prevented. We have to consider both sides, and we should find the least costly remedy.

Imagine, Professor Coase suggests, that a factory spews smoke that causes $100 in damage. Traditional economics might suggest that the government put a $100 tax on the factory to compensate for the pollution. That gives the company an incentive to eliminate the pollution by, for instance, installing a $90 device. This sort of analysis is what many economists still teach.

But, Professor Coase says, the $90 device may not be the only or cheapest way to avoid $100 in damage. Again, we must consider both sides. Suppose neighbors could avoid the pollution for just $40 by moving or by installing other technology. That would be an even better approach because it would keep the overall harms to a minimum.

While it may be hard to find real-life examples like this for air pollution, they are extremely common for aesthetic conflict. If you don't like your neighbors' backyard swing set or the mural on the side of a local building, you can generally avoid looking at it -- a cheap solution. And since we tend to become used to our surroundings over time, it becomes easier and easier to ignore visual offenses. Sometimes we even come to enjoy sights we once found annoying.

So if we consider not just the offense but the value of the activity that gives rise to it, more often than not we find that the least costly way to deal with aesthetic conflicts is to put up with occasional ugliness. That is one reason homeowners have generally been free to decorate to their own tastes -- a large benefit to them, at a small cost to neighbors who disagree. And it is why federal law prohibits communities from completely banning cell-phone towers.

Tolerance looks even better when we factor in something "The Problem of Social Cost" did not consider: the value of innovation and learning.

Enforcing taste means blocking experimentation. So architects in Portland can't find as many new ways to fit efficient houses on small lots. And Mr. Muschamp worries that New York City will zone out architectural creativity in favor of safe "hackery." If we call visual offenses "pollution" and demand that they be banned, we aren't considering all the costs.