In a recent one interview Along with Tyler Cowen, Nobel Prize-winning economist Joseph Stiglitz stated his opposition to housing deregulation:
One person’s freedom is another’s unfreedom. That means what I can do. . . I talk about freedom as what a person could do, his opportunities, his choices he could make. And when one person exerts an externality on another by exercising his freedom, he does so restrictive the freedom of others. If you have an unobstructed building (for example, you don’t have zoning), you can build a building as high as you want. The problem is that your tall building robs another building of light. There may be noise.
Stiglitz is undoubtedly right when he says that increased construction brings negative externalities. But he is wrong to suggest that this will solve the matter.
First, it creates more construction positive external factors that are likely to outweigh the negative ones. Increasing the supply of housing makes it easier for workers to move into better jobs, which accelerates economic growth. And denser cities reduce the need for cars, which in turn reduces CO2 emissions.
But another response to Stiglitz highlights a point that is often overlooked in discussions of negative externalities. right to create them.
Take a simple case inspired by the philosopher Robert Nozick. Carl proposes to the love of his life, Alice, for marriage. While Alice thinks about it, Bob proposes and Alice accepts. Crucial, Alice would have accepted Carl’s proposal, if not Bob’s. So Carl lives the rest of his life alone and miserable thanks to Bob. Bob’s proposal to Alice thus creates a serious negative externality. The harm Carl suffers is far worse than the harm suffered by those whose view is blocked by a newly constructed high-rise building.
Still, Bob has the right to marry Alice, even if it hurts Carl. In short, he has the right to make a marriage proposal and Alice has the right to accept it. Moreover, so does Carl not have the right for Alice to accept his marriage proposal. So while the outcome is unfortunate for Carl, he has no reason to interfere because no one’s rights have been violated.
In the same vein, the mere fact that a new high-rise makes a resident worse off does not justify blocking its construction. To answer that question, we need to sort out the relevant rights claims. Assuming that the real estate used to build the high-rise was acquired equitably, its construction is at least presumptively permissible. The developer has the right to use its property as it sees fit, including using it to build something big.
Of course not everything what you might do with your property is allowed. You can’t use your baseball bat to kneecap the opposing pitcher. But that’s because the thrower has the right to bodily autonomy, which protects his knees from crushing.
Is there a similar right in the case of a building that could nullify the developer’s ownership rights? I’m sceptical. At first glance, the best candidate is something like the right not to have a desirable view obstructed. Unfortunately for the opponent of housing deregulation, this type of right simply does not seem plausible.
To see why, let’s say you love the look of my hair. Suddenly I decide to wear a hat. I have obstructed a vision that you consider desirable, but you clearly have no right to prevent me from doing so. The idea that you have a right to an unobstructed view needs at least some refinement.
Perhaps the idea can be saved by limiting it to cases of serious harm. It is likely that the harm you suffer from an obstructed view of the sunset is greater than the harm you suffer from an obstructed view of my hair. But the severity of the negative externality alone is not enough to demonstrate that someone is not within his or her right to impose it. The damage Carl suffers as a result of Bob’s marriage proposal is greater than the damage he suffers as a result of a new high-rise building. Since Bob might ask Alice to marry him, it looks like he’s also going to build a high-rise near Carl. After all, it would be strange to allow Bob to impose the more harmful negative externality (a life of loneliness and misery for Carl) but not the less harmful negative externality (an obstructed view of the sunset for Carl). Or imagine that Carl owns a small bookstore and Bob moves in next door to him at a Barnes & Noble. Bob may end up bankrupting Carl, but he’s still allowed to do it. The broader point is that an actor can be free to act even in cases where the action creates a negative externality. At most, the presence of a negative externality starts a conversation, but does not end it.
Christopher Freiman is Professor of General Business Administration at the John Chambers College of Business and Economics at West Virginia University.