The Problem of Social Cost Revisited

Abstract

SOME years ago, in a paper entitled "The Problem of Social Cost,"' Professor Ronald Coase asserted and argued for a proposition which has since acquired the convenient sobriquet "the Coase Theorem." The proposition is: That in a world of perfect competition, perfect information, and zero transaction costs, the allocation of resources in the economy will be efficient and will be unaffected by legal rules regarding the initial impact of costs resulting from externalities. Note that there are two claims being made, which it is well to separate for purposes of discussion. The first claim is that, under the conditions described, some efficient allocation of resources will be achieved, whatever the legal rule. The second claim is that, under those conditions, the same efficient allocation will be achieved, whatever the legal rule. I shall refer to the first claim as the "efficiency" thesis and to the second claim as the "invariance" thesis of the Coase Theorem. I shall argue that neither thesis can be deduced from the traditional assumptions about individual economic behavior which are the foundation of neoclassical price theory and contemporary welfare economics.

O Dilema de emissões de carbono: soluções podem vir de mercado ou de mudanças comportamentais?

“…In its turn Coase (1960) argued that the solution to the problems of the damage caused by economic activities comes from the market itself, or property rights. Regan (1972) points out that the Coase argument may be valid and applicable in an ideal context in which rationality is the dominant logic and negotiation between the agents is an achievable goal, a win-win kind of economy which is not easily found.…”

Macroeconomic Policy Analysis

“…Hahn (1973b), Gale (1982); the literature on externalities, e.g. Coase (1960), Buchanan and Stubblebine (1962), Dahlman (1979), and Regan (1972); and work on public choice and aspects of economic planning, e.g. Mueller (1989), and Cave and Hare (1981).…”

“…In particular, there are those who regard distribution as the very essence of politics (e.g. Riker, 1962;Barry, 1965; and see Mueller, 1989, for a more wide-ranging discussion). More generally, even weaker versions of this argument suggest that equity and efficiency aspects need to be considered simultaneously when assessing different allocation mechanisms.…”

Economic Theories of Legal Liability

“…Underlying this proposition is the hypothesis that efficient outcomes in strategic games approach 100 percent as transactions costs approach zero (Regan, 1972). This hypothesis seems glib in light of subsequent theoretical developments about games with asymmetrical information, including models of legal disputes that Coase partly inspired.…”