Excellent Post In Honor Of Ronald Coase's 99th Birthday By Landsburg

The second great idea about externalities sprang full-blown from the mind of a law professor and subsequent Nobel prize winner named Ronald Coase, who stunned the profession in 1960 by pointing out.... If you breathe the pollution from my factory, I’m imposing a cost on you—but at the same time, you’re imposing a cost on me. After all, if you lived somewhere else, you wouldn’t be complaining about the smoke and I wouldn’t be getting punished for it.

This insight—so simple once stated, but thoroughly astonishing to the economists of 1960 (I’ve heard tales of this astonishment from several of the participants in Coase’s historic seminar)—means that in a case of externalities, pure theory can never tell you who should bear the costs; you’ve got to look at the specifics of the case.

From the excellent blog post, "Happy 99th Birthday, Ronald Coase" by Steve Landsburg.