Abstract
This paper supports the view expressed by other authors that Ronald Coase’s ideas are often misrepresented in the academic world. It restates some of Coase’s main findings with special emphasis on their relevance to processes taking place in Eastern Europe. The goal of this paper is to revisit Coasean theory, to prove that oftentimes it is misrepresented and misinterpreted and to show its relevance to some societies experiencing high transaction costs. The role of the legal system under high transaction costs is stressed in its importance to transitional economies experiencing staggeringly high transaction costs. This paper tries to shed light on the importance of transaction costs in the newly emerging markets and the respective role courts and the government should play in directing economic resources.
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Notes
For a thorough revision of formulations of Coase theorem in economic literature, see Butler and Garnett (2003).
Stigler (1966, p. 113) coined the term Coase theorem in the third edition of his price theory textbook.
In his criticism to Coase’s supporters, Block (2003, p. 936) accuses them of “nothing less than a socialist attempt to undermine the institution of private property rights.”
Unlike Butler and Garnett (2003), we find that Nicholson presents the theory properly.
Arrow (1969, p. 60) claims, “The State may frequently have a special role to play in resource allocation because, by its nature, it has a monopoly of coercive power, and coercive power can be used to economize on transaction costs. The most important use of coercion in the economic context is the collection of taxes; others are regulatory legislation and eminent domain proceedings.”
In addition, Coase (1991) states, “It makes little sense for economists to discuss the process of exchange without specifying the institutional setting within which the trading takes place since this affects the incentives to produce and the costs of transacting. I think this is now beginning to be recognized and has been made crystal-clear by what is going on in Eastern Europe today.”
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Acknowledgment
I thank Bharath Ramachandran and Atanas Leonidov for their invaluable comments.
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Todorova, T. The Coase Theorem Revisited: Implications for Economic Transition. Atl Econ J 35, 189–201 (2007). https://doi.org/10.1007/s11293-007-9067-9
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DOI: https://doi.org/10.1007/s11293-007-9067-9