Problems and property rights

David R. Henderson writes on How Property Rights Solve Problems.

Should restaurants allow smoking or not? Should schools teach evolution or intelligent design or both? Should insurance companies cover contraception? Should I be able to take off my shoes in your living room?

The answer to all these questions is that whoever has the property rights in each of the situations gets to decide. Property rights are an simple but effective way of dealing with such problems. Take the smoking question as an example. Henderson writes,

Should a restaurant allow smoking or not? I have no idea. Neither do you. Who does? The restaurant owner. The restaurant owner knows that if he bans smoking, he will get more business from non-smokers and less business from smokers. He also knows that if he doesn't ban smoking, he will get more business from smokers and less from non-smokers. He will make that tradeoff and, if he has no particular interest one way or the other, will likely do so in a way that maximizes his net income from running a restaurant.1

Ah, but what about his employees? Don't they matter? Yes, they do, and the restaurant owner knows that they do and has an incentive to take account of their preferences. If his employees don't like working where there's smoke, he will take account of both the extra wages he must pay to get good employees and the higher turnover of employees. These all factor into his decision. Interestingly, though, when I discussed this issue with a former waitress who doesn't like smoke, she told me that she and her colleagues had preferred, as waiters and waitresses, to work in restaurants that allowed smoking. Why? Because, she said, people who smoked also had a higher probability of drinking alcohol and, therefore, had higher restaurant tabs and paid bigger tips.

In short, whether restaurant owners should allow smoking is not a public-policy problem. It's a totally private issue, and the person who should make the decision is the owner. The only reason it looks like a public-policy problem is that the government has made it one—by increasingly putting its thumb on the scales and dictating non-smoking restaurants.

A nice example of property rights dealing with the smoking issue comes from the University of Chicago,

A true story about two well-known economists is a propos. Robert Barro, an economics professor at Harvard University, who is on many people's short list for a Nobel Prize in economics, hates smoke also. When he was on the economics faculty at the University of Chicago, at a time when smoking was allowed, he had a "No smoking" sign on his office door. But that's not all the sign said. One of Barro's colleagues at the time was Robert Lucas, a brilliant economist who, in 1995, did win the Nobel Prize in economics. Barro treasured his conversations with Lucas. So, the full text of sign was: "No smoking, except for Bob Lucas."

In other words, Bob Barro traded off his intense dislike of cigarette smoke for his intense appreciation of his conversations with Bob Lucas. He made a judgment about how to use his property—his office—based on that tradeoff.