The Coase Theorem Delivers: The Case of the Beverly Hills Farmers Market

Each Sunday morning, my wife and I shop at the Beverly Hills Farmers Market.  As we tried to drive out of the parking lot, we were stuck in a huge traffic jam.  This has never happened before.  I exited the car and walked up to the traffic kiosk to find out why we were stuck in traffic.  At this kiosk, you are supposed to pay for parking or hand over your parking validation (because each driver receives 2 free hours of parking).  At the front of the line was a SUV with a bumper sticker that said (“UCLA Mom”). This driver had lost her parking ticket and she refused to pay the $16 fee.  She was the cause of the growing line.

What happened next?  Another woman who was stuck on the line (she drives a nice Mercedes) was getting angry.  She walked up to the Kiosk and paid the first woman’s $16 fee and all us stuck on this line were released.

This is a great example of the Coase theorem.  The person driving the Mercedes realized that she did not have property rights and she paid for the right to be released from this line.  The rest of us stuck on line were free riding on her willingness to pay to liberate herself from this situation.  This is an example of Coase’s lighthouse at work.  She provided a local public good for all of us because her private benefits from being released > $16.