Coase, Koch, and Cato

Coase, Koch, and Cato

Coase, Koch, and Cato

Moneybox
A blog about business and economics.
March 14 2012 4:24 PM

Coase, Koch, and Cato

Cato Institute Vice President Gene Healy has a very succinct and simple account of why the management of the Cato Institute doesn't want to accede to Charles and David Koch's demand that they be allowed to assume majority ownership of Cato. He asks "Would a think tank that could accurately be described as a wholly owned subsidiary of Koch Industries ever be taken seriously in public-policy debates?"

I think he's exaggerating for effect when he says the answer is "no," but it's clear what his point is. The Cato Institute has substantial brand value, and that brand value is best maintained by operating de jure in the way it has been operating de facto for a long time—as a traditional donor-financed 501(c)3 with a diverse funding base. At the same time, this renders his conclusion a bit hard to understand:

And that leaves us with a more fundamental question: What in the hell did the Kochs hope to accomplish here? Like many others, I really wish I knew.
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Presumably the Kochs want Cato for the same reason Cato's managers don't want to just take their donors and start a new think tank. The Cato brand has value. The Kochs, believing themselves to be legally entitled to ownership of this valuable brand don't want to relinquish that claim just because doing so would be convenient for Cato's existing staff and managers. Interestingly, the world of free markets and libertarianism has long had a solution for this kind of conflict—bargaining! The Cato brand is worth something to the Kochs. It's also worth something to the existing Cato team and their donors. If, as Healy plausibly argues, the brand is more valuable in the hands of the existing management then the sensible solution is to buy it from the Kochs rather than trying to engage in legal funnybusiness to steal it from them.