Ronald Coase and reciprocal harms (continued): Frank Knight’s reciprocal framing of A. C. Pigou’s road congestion hypothetical

In my previous post, we saw Frank Knight’s critique of A. C. Pigou’s economic analysis of traffic congestion. For Pigou, road congestion is a tragedy of the commons or market failure that requires active government intervention: the imposition of a tax or congestion fee to reduce the number of drivers on the road. For Knight (and for his disciple, Coase), however, road congestion is a legal failure: the absence of property rights in roadways. Today, I want to take a closer look at the logic of Knight’s critique of Pigou. To begin, why does Knight tweak Pigou’s hypothetical example of road congestion? In Pigou’s original setup (Pigou 1920, p. 194), “there are two roads ABD and ACD both leading from A to D.” Knight, by contrast, modifies Pigou’s hypothetical example. In Knight’s modified hypo, one of the roads is shoddy and full of potholes but wide enough to handle a lot of extra traffic, while the other road is in perfect condition but too narrow to accommodate too much traffic:…