Economics Dictionary of ArgumentsHome
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| Coase Theorem: The Coase Theorem, proposed by economist Ronald Coase, asserts that in the absence of transaction costs, bargaining between parties will lead to an efficient allocation of resources regardless of the initial assignment of property rights, as long as property rights are well-defined and parties can negotiate freely. The Coase theorem explains for the first time why companies are formed._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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George J. Stigler on Coase Theorem - Dictionary of Arguments
Kiesling I 24 Coase Theorem/Stigler/Kiesling: While [Ronald] Coase(1) focused on the pervasiveness of transaction costs, his colleague George Stigler interpreted Coase’s emphasis differently (see Posner’s (2017(2)) discussion). >Social cost/Coase, >Transation costs/Coase. Stigler articulated what he called “the Coase Theorem”: when transaction costs are zero, the specific assignment of legal liability or the definition of property rights does not change the ability of parties to achieve the most efficient outcome, although it will change the distribution of realized costs and benefits. In a situation where there are no transaction costs, the precise definition of property rights does not affect the ability of the parties to find the efficient distribution of rights and efficient use of the resource. Kiesling I 25 Problem: In that setting, the only effect that the specific property rights definition has is on the distribution of costs and benefits, not on the ability to achieve the most efficient outcome. Using the paper mill and water treatment plant example, if the efficient outcome is for the paper mill to install a filter, if they face no transaction costs then discovering that efficient outcome through bargaining is easy and costless. What the court’s definition of rights and liabilities does in this case is to determine who pays for the filter that the paper mill installs. VsStigler: Although Stigler’s Coase Theorem has gathered considerable attention over the past four decades, it rather misses Coase’s point that courts and legal precedent are important precisely because transaction costs are pervasive and often high enough to prevent mutually-beneficial exchange. >Law/Coase, >Information/Coase. “The So-Called Coase Theorem” (McCloskey, 1998)(3) also misses the point to the extent that Coase’s emphasis was not on idealized models with transaction costs assumed to be zero, but was entirely on real-world situations where coordination has to create feasible institutional frameworks to manage conflict resolution in the presence of positive transaction costs. Although it the Coase Theorem provides a concrete theoretical benchmark, focusing on the unrealistic zero transaction cost case is a bit too close to the “blackboard economics” that Coase so criticized. >Law and economics. 1. Coase, Ronald H. (1960). The Problem of Social Cost. Journal of Law and Economics 3: 1-44. 2. Posner, Eric A. (2017). Coase Theorem. In Bruno Frey and David Iselin (eds.), Economic Ideas You Should Forget. Springer: 101-103. 3. McCloskey, Deirdre (1998). The So-Called Coase Theorem. Eastern Economic Journal 24, 3: 367-371._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconStigler I George J. Stigler Gary S. Becker De Gustibus Non Est Disputandum 1977 |
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