Definition
Assuming the property rights are well defined and that the costs of transacting are zero, parties to an externality will resolve the dispute efficiently, and the outcome will be unaffected by to which party rights are initially assigned.
Introduction
The Coase theorem was derived from the negotiation result laid out by Ronald Coase in his 1960 article, “The Problem of Social Cost” (1960), after having first been articulated in his discussion of the allocation of broadcast frequencies a year earlier (Coase 1959). The theorem, so named by George Stigler (1966, p. 113), has been stated in a variety of ways by the thousands of authors who have invoked it over the last five decades, but the essentials are as follows: Assuming the property rights are well defined and that the costs of transacting are zero, parties to an externality will resolve the dispute efficiently, and the outcome will be unaffected by to which party rights are initially assigned. In short, rights matter, but...
References
Allen DW (1990) What are transaction costs? Res Law Econ 14:1–18
Coase RH (1959) The federal communications commission. J Law Econ 2(1):1–40
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Further Reading
Ayres I, Talley E (1995) Solomonic bargaining: dividing a legal entitlement to facilitate coasean trade. Yale Law J 104(5):1027–1117
Buchanan JM (1973) The Coase theorem and the theory of the state. Nat Resour J 13:579–594
Calabresi G (1991) The pointlessness of pareto: carrying Coase further. Yale Law J 100:1211–1237
Calabresi G, Melamed AD (1972) Property rules, liability rules and inalienability: one view of the cathedral. Harv Law Rev 85(6):1089–1128
Coase RH (1988) Notes on the problem of social cost. In: The firm, the market, and the law. University of Chicago Press, Chicago, pp 157–185
Cooter R (1982) The cost of Coase. J Leg Stud 11(1):1–33
Demsetz H (1972) When does the rule of liability matter? J Leg Stud 1(1):13–28
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Farber DA (1997) Parody lost/pragmatism regained: the ironic history of the Coase theorem. Va Law Rev 83:397
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Medema SG (1994) Ronald H Coase. Macmillan, London
Medema SG (1999) Legal fiction: the place of the Coase theorem in law and economics. Econ Philos 15(2):209–233
Medema SG (2009) The hesitant hand: taming self-interest in the history of economic ideas. Princeton University Press, Princeton
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Medema, S.G. (2013). Coase Theorem. In: Backhaus, J. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7883-6_29-1
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