Abstract
The Coase Theorem is in essence an if-A-then-B statement. Previous discussions of the Theorem have mostly focused on the then-B part and examined that, given the condition of A, whether B is true or not. The present study attempts to analyze the Theorem from a different angle. In particular, we push the if-A assumption, i.e., the zero transaction costs assumption, to its logical limit, and then explore the implications. We argue that the price mechanism, which is implicitly employed as the foundational basis of the Coase Theorem, is the result of positive transaction costs. Consequently, if transaction costs are zero, then money and prices as commonly understood would not exist, and the value of production would become a vague concept without any operational content. As such, the world of zero transaction costs may be even more peculiar than Coase might have thought!
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Hsiung, B. Sailing Towards the Brave New World of Zero Transaction Costs. European Journal of Law and Economics 8, 153–169 (1999). https://doi.org/10.1023/A:1008768523952
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DOI: https://doi.org/10.1023/A:1008768523952