THE JOURNAL OF LAW AND ECONOMICS areas in which the emission of smoke would have harmful effects on others) It is my contention that the suggested courses of action are inappropriate, in that they lead to results which are not necessarily, or even usually, desirable I. THE RECIPROCAL NATURE OF THE PROBLEM The traditional approach has tended to obscure the nature of the choice that has to be made The question is commonly thought of as one in which a inflicts harm on b and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm b or should b be allowed to harm a? The problem is to avoid the more serious harm. I instanced in my previous article2 the case of a confectioner the noise and vibrations from whose ma chinery disturbed a doctor in his work. To avoid harming the doctor would inflict harm on the confectioner. The problem posed by this case was essential- ly whether it was worth while, as a result of restricting the methods of produc tion which could be used by the confectioner to secure more doctoring at the cost of a reduced supply of confectionery products. Another example is forded by the problem of straying cattle which destroy crops on neighbour ing land. If it is inevitable that some cattle will stray, an increase in the sup ply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops. What answer should be given is, of course, not clear unless we know the value of what is obtained as well as the value of what is sacrificed to obtain it. To give another example, Professor George J. Stigler instances the contamination of a stream. assume that the harmful effect of the pollution is that it kills the question to be decided is: is the value of the fish lost greater or less value of the product which the contamination of the stream makes possible It goes almost without saying that this problem has to be looked at in total and at the marg III. THE PRICING SYSTEM WITH LIABILITY FOR DAMAGE i propose to start my analysis by examining a case in which most econo mists would presumably agree that the problem would be solved in a com pletely satisfactory manner: when the damaging business has to pay for all damage caused and the pricing system works smoothly(strictly this means hat the operation of a pricing system is without cost) a good example of the problem under discussion is afforded by the case of straying cattle which destroy crops growing on neighbouring land. Let us sup- pose that a farmer and a cattle-raiser are operating on neighbouring proper 2 Coase, The Federal Communications Commission, 2 J. Law Econ 26-27(1959) G.J. Stigler, The Theory of Price 105 (1952)2 THE JOURNAL OF LAW AND ECONOMICS areas in which the emission of smoke would have harmful effects on others). It is my contention that the suggested courses of action are inappropriate, in that they lead to results which are not necessarily, or even usually, desirable. II. THE RECIPROCAL NATURE OF THE PROBLEM The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm. I instanced in my previous article2 the case of a confectioner the noise and vibrations from whose ma￾chinery disturbed a doctor in his work. To avoid harming the doctor would inflict harm on the confectioner. The problem posed by this case was essential￾ly whether it was worth while, as a result of restricting the methods of produc￾tion which could be used by the confectioner, to secure more doctoring at the cost of a reduced supply of confectionery products. Another example is afforded by the problem of straying cattle which destroy crops on neighbour￾ing land. If it is inevitable that some cattle will stray, an increase in the sup￾ply of meat can only be obtained at the expense of a decrease in the supply of crops. The nature of the choice is clear: meat or crops. What answer should be given is, of course, not clear unless we know the value of what is obtained as well as the value of what is sacrificed to obtain it. To give another example, Professor George J. Stigler instances the contamination of a stream.3 If we assume that the harmful effect of the pollution is that it kills the fish, the question to be decided is: is the value of the fish lost greater or less than the value of the product which the contamination of the stream makes possible. It goes almost without saying that this problem has to be looked at in total and at the margin. III. THE PRICING SYSTEM WITH LIABILITY FOR DAMAGE I propose to start my analysis by examining a case in which most econo￾mists would presumably agree that the problem would be solved in a com￾pletely satisfactory manner: when the damaging business has to pay for all damage caused and the pricing system works smoothly (strictly this means that the operation of a pricing system is without cost). A good example of the problem under discussion is afforded by the case of straying cattle which destroy crops growing on neighbouring land. Let us sup￾pose that a farmer and a cattle-raiser are operating on neighbouring proper- 2 Coase, The Federal Communications Commission, 2 J. Law & Econ. 26-27 (1959). 3 G. J. Stigler, The Theory of Price 105 (1952)