Coase pointed out that one cannot resolve this issue until one clearly defines property rights—that is, the legal

rights of ownership on which others are not allowed to infringe without paying compensation. Does the farmer

have a property right not to have a field burned? Does the railroad have a property right to run its own trains

on its own tracks? If neither party has a property right, then the two sides may squabble endlessly, doing
nothing, and sparks will continue to set the field aflame. However, if either the farmer or the railroad has a

well-defined legal responsibility, then that party will seek out and pay for the least costly method of reducing

the risk that sparks will hit the field. The property right determines whether the farmer or the railroad pays the

bills.
290 12 • Environmental Protection and Negative Externalities

The property rights approach is highly relevant in cases involving endangered species. The U.S. government’s
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