therealcoasetheorems.docVIP

The Real Coase Theorems Glenn Fox Department of Agricultural Economics and Business University of Guelph November, 2004  Abstract “The Real Coase Theorems” Glenn Fox, Department of Agricultural Economics and Business, University of Guelph The Coase Theorem is one of the most widely cited ideas in modern social science. It has precipitated an enormous critical literature. It is discussed in a wide range of economics textbooks. In some respects, the theorem is the ultimate example of successful economic scholarship; an idea that has attracted the attention of virtually all practitioners of economics, of many legal and political theorists and whose validity continues to be debated 40 years after the original article appeared. There is only one problem; Coase denies that he ever proposed the theorem that bears his name. He has stated that he regrets having published “The Problem of Social Cost”, because, in his judgment, the essay has had exactly the opposite effect that he wanted it to have. The “Coase Theorem” is widely viewed as claim about what happens in actual human social interaction. The bulk of the controversy surrounding this proposition has to do with specifying the conditions under which the predicted outcome will occur. Coase has subsequently explained that his analysis of what would happen in a world without transaction costs is a purely hypothetical analysis. It is not a proposition about real events. So, it would appear that economists have missed the point of “The Problem of Social Cost”. But what was Coase’s original intent? What are “The Real Coase theorems”? This paper examines the two propositions that Coase actually presented in 1960: that economists should view harm as reciprocal and that transaction costs provide an economic rationale for judicial and governmental reorganization of property ownership. The purpose of this essay is to assess those two theorems. My thesis is tha