Coase and Accommodation: A Reply
34 Pages Posted: 25 Feb 2022
Date Written: February 24, 2022
Written for a Festschrift in honor of Michael Perry, this essay responds to the argument that the Coase theorem refutes the third-party harm doctrine, which holds that the Establishment Clause prohibits any religious accommodation imposing material burdens (“harms”) on those who derive no benefit from the accommodation because they do not engage in the exempted practice (“third parties”). In economic terms, the third-party harm doctrine prohibits negative externalities created by religious accommodations which shift material costs of practicing the accommodated religion to a relatively small number of third parties who practice a different religion or none at all.
Enter Coase, whose famous article, The Problem of Social Cost, argued that negative externalities associated with economic production are reciprocal. Coase famously observed that when transaction costs are zero, persons engaged in competing economic activities will bargain their way to the economically efficient mix of those activities, regardless of where the legal system places liability for externalities.
Invoking Coase, religious accommodationists, notably Professor Stephanie Barclay, have attacked the third-party harm doctrine, arguing that negative externalities from religious accommodations do not justify their denial because externalized harms also flow in the other direction. Accommodations allow believers to externalize the costs of practicing their religion onto third parties, the argument goes, but without accommodation, those third parties are permitted to externalize the costs of living out their differing beliefs onto the believers seeking accommodation. Barclay argues that harms to third parties from religious accommodations cannot ground the third-party harm doctrine, because those very third parties are reciprocally harming those who seek accommodations.
Application of the Coase theorem to religious accommodations is ill-conceived on both economic and ethical grounds. It fails on its own economic premises, which generate complex puzzles about value judgments, bargaining, and government intervention to which Barclay offers no solution. But worse, she leaves the ethical question unanswered: how can a government that guarantees its citizens religious equality justify actions that force some citizens to pay for the religious practices of others? The third-party harm doctrine rests on powerful ethical grounds, while accommodationists have yet to articulate a plausible normative theory which justifies shifting the costs of practicing a religion from those who believe it to those who don’t.
Keywords: religious accommodation, third-party harm, Coase, negative externalities, freedom of religion, first amendment, law and economics
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