Last night I saw the excellent Butch Cassidy and the Sundance Kid for the first time. There’s a lot of economics in that movie.
For instance, when Butch Cassidy finds out the expensive lengths the train company is going to in order to stop he and Sundance from robbing them, he identifies and laments a pareto improving road not taking.:
“A set-up like that costs more than we ever took…If he’d just pay me what he’s spending to make me stop robbing him, I’d stop robbing him.”
This is a lesson in the limitations of the Coase theorem, especially when one party has shows a willingness to break the law. Reputation and trust matter for effective contracts.
Later Butch wants, and in fact tries, to make a bargain with the government, offering to fight in the Spanish-American war and stop his criminal ways if all their past crimes will be forgiven. Again, the reputation and the commitment problem prevent a pareto improving outcome.
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