The Coase theorem at work?

In the US, Illinois instituted a smoking ban in bars and restaurants in January 2008. What happened? This comes from Lynne Kiesling at the Knowledge Problem blog.

The Crowbar, on the southeast side of Chicago near the Indiana border, provides an experiment on precisely this point. The bar’s owner takes donations to pay for the fines that he is charged for allowing smoking:

Owner Pat Carroll said his customers — smokers and nonsmokers alike — contribute to a “smoking fund” canister that often sits on the bar, to subsidize the fines he’s incurred for flouting the law.

Carroll said he’s been ticketed twice and paid at least $680. He fears that if he forbids smoking, his cigar-and-cigarette crowd would switch to bars that permit smoking just a few blocks away in Indiana. …

But some smokers say they’ll support any tavern that gives them sanctuary. Laura Pugh said she contributes $5 a month to Crowbar’s smoking fund, considering it akin to membership fees at a private club. If she couldn’t smoke there, Pugh said she’d probably go to a bar in Indiana.

First, notice what the legislation has done in terms of redefining property rights. In essence smokers are purchasing the right to smoke, because the legislation makes the default property right the non-smoker’s right to clean air.

If the legislators in Illinois had read Coase's 1960 paper "The Problem of Social Cost" they may have been able to workout that their law wouldn't effect the outcome. If the law leads to an inefficient allocation of property rights then smokers will just buy the right to smoke from the non-smokers, as in this case they are effectively doing.