The Coase Theorem Says That As Long As Property Rights Are Clearly Defined, Externalities Do Not Matter
The ‘Coase Theorem' as it has become known, was propounded by Ronald Coase of the University of Chicago and deals with a hypothetical world of zero transaction costs. His aim in so doing was "not to describe what life would be like in such a world but to provide a simple setting in which to develop the analysis and, what was even more important, to make clear the fundamental role which transaction costs do, and should, play in the fashioning of the institutions which make up the economic system." A zero transaction cost world does of course have very peculiar properties, such that one of Coase's own conclusions was that, in such a world, the law does not matter. People would always be able to negotiate without cost to acquire, subdivide and combine rights whenever this would increase the value of production and so a legal framework is unnecessary. However, a world of zero transaction costs does not exist and Coase tried to use the argument to suggest the need to introduce positive......
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The Coase Theorem Says That As Long As Property Rights Are Clearly ...
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