Blocher, Gulati and Coase: Making or Buying Sovereignty?
Blocher and Gulati’s wonderful and challenging thought experiment brings to mind one of the most influential articles in legal scholarship, Ronald Coase’s The Problem of Social Cost. Coase famously observed that, in the absence of transaction costs, the law’s assignment of entitlements should have no effect on behavior. Whoever most values the entitlement would purchase it (if the law assigned it to another), or retain it (if the law already assigned the entitlement to that person). Thus things like property and tort rights should have no impact on the level of human activity, whether safeguarding against harm or adding value through exploitation. The assignment of that right should affect only wealth distribution, not behavior.
So, Blocher and Gulati seem to say, a state’s right to territory similarly should be seen as an entitlement that might be exchanged for sufficient consideration. Why would not Coasean bargaining over territory lead to a Pareto-optimal world? After transaction-cost-free bargaining, would not alignments of territory and sovereignty resolve in a way that maximizes social welfare, which is to say human happiness?