Abstract
The authors examine current textbook representations of Coase's analysis of negative externalities [Coase, 1960]. Standard treatments identify Coase's ideas with Stigler's Coase Theorem: a zero transaction cost world in which efficient solutions emerge automatically, regardless of legal rules and the initial allocation of rights. Yet Coase's seminal paper breaks from this mode of analysis. The authors use this intellectual history to distinguish two approaches to negative externalities: blackboard (Pigou, Stigler, Samuelson) and Coasean. They survey 45 microeconomics textbooks and find that 80 percent misrepresent Coase's arguments. They argue that a Coasean approach increases students' critical thinking skills by challenging them to move beyond simple laissez faire or interventionist solutions.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Arnold, R. A.Economics, 5th edition, Cincinnati: South-Western, 2001.
Bator, F. M. “The Anatomy of Market Failure,”Quarterly Journal of Economics, 72, August, 1958, pg. 351–79.
Baumol, W.; Blinder, A.Economics, 8th edition, Fort Worth: Dryden, 2000.
Coase, R. H. “The Problem of Social Cost,”Journal of Law and Economics, 3, October, 1960, pg. 1–44.
——.The Firm, the Market, and the Law, Chicago: University of Chicago Press, 1988.
——.Essays on Economics and Economists, Chicago: University of Chicago Press, 1994.
Cooter, R. “Coase Theorem.” In J. Eatwell, M. Milgate, and P. Newman, eds.,The New Palgrave: A Dictionary of Economics, London: Macmillan, 1987.
Eaton, C. B.; Eaton, D.; Allen, D.Microeconomics, 5th edition, Toronto, Ontario: Pearson Education Canada, 2002.
Frank, R. H.Microeconomics and Behavior, 5th edition, Boston: Irwin McGraw-Hill, 2003.
——.; Bernanke, B.Principles of Microeconomics, Boston: McGraw-Hill Irwin, 2001.
Friedman, D. F.Price Theory, 2nd edition, Cincinnati South-Western, 1990.
--. “The Swedes Get it Right.”http://ddfr.best.vwh.net/Academic/Coase_World.html, 1991.
Gottheil, F.Principles of Economics, 3rd edition, Cincinnati: South-Western, 2002.
Grinols, E. L.Microeconomics, Boston: Houghton-Mifflin, 1994.
Heyne, P.; Boettke, P.; Prychitko, D.The Economic Way of Thinking, 10th edition, Upper Saddle River, NJ: Prentice Hall, 2003.
Hirsch, W. Z.Urban Economics. New York: Macmillan, 1984.
Hirshleifer, J.; Hirshleifer, D.Price Theory and Applications, 6th edition, Upper Saddle River, NJ: Prentice Hall, 1998.
Klaes, M. “The History of the Concept of Transaction Costs: Neglected Aspects,”Journal of the History of Economic Thought, 22, 2, 2000, pg. 191–216.
Landsburg, S.Price Theory and Applications, 5th edition, Cincinnati: South-Western, 2002.
Lipsey, R. G.; Lancaster, K. “The General Theory of Second Best,”Review of Economic Studies, 24, December, 1956, pg. 11–32.
Mankiw, N. G.Principles of Economics, 2nd edition, Fort Worth: Harcourt, 2001.
McCloskey, D. N. “The So-Called Coase Theorem,”Eastern Economic Journal, 24, 3, 1998, pg. 367–71.
——.The Applied Theory of Price, New York: Macmillan, 1982.
McConnell, C. R.; Brue, S. L.Economics, 15th edition, Boston: Irwin McGraw-Hill, 2002.
McEachern, W. A.Economics, 5th edition, Cincinnati: South-Western, 2000.
Meade, J. “External Economies and Diseconomies in a Competitive Situation,”Economic Journal, 62, 1952, pg. 54–67.
Medema, S. G.Ronald H. Coase, New York: St. Martin's Press, 1994.
——.The Legacy of Ronald Coase in Economic Analysis, Brookfield: Edward Elgar, eds, 1995.
——. Samuels, W. J. “Ronald Coase and Coasean Economics: Some Questions, Conjectures and Implications,” in W. Samuels, S. Medema, and A. Schmid, eds.,The Economy as a Process of Valuation, pg. 72–128, Cheltenham, U.K.: Edward Elgar, 1997.
Mills, E. S.; Hamilton, B. W.Urban Economics, New York: HarperCollins, 1994.
Nelson, C. E. “Skewered on the Unicorn's Horn: The Illusion of the Tragic Tradeoff Between Content and Critical Thinking in the Teaching of Science,” in L. W. Crow, ed.,Enhancing Critical Thinking in the Sciences, 1989, pg. 17–27, Washington, D.C.: Society for College Science Teachers.
Pashigian, B. P.Price Theory and Applications, 2nd edition, Boston: Irwin McGraw-Hill, 1998.
Perry, W. G., Jr.Forms of Intellectual and Ethical Development in the College Years: A Scheme, New York: Holt, Rinehart, and Winston, 1970.
Pigou, A. C.The Economics of Welfare, 4th edition, London: Macmillan, 1960 (1932).
Pindyck, R. S.; Rubinfeld, D. L.Microeconomics, 5th edition, Upper Saddle River, NJ: Prentice Hall. Posner, R. 1993. “Ronald Coase and Methodology.”Journal of Economic Perspectives, 7, 4, 2001, pg. 195–210.
Samuelson, P. A. “Aspects of Public Expenditure Theories,”Review of Economics and Statistics, 15, November, 1958, pg. 332–38.
——.Economics: An Introductory Analysis, 6th edition, New York: McGraw-Hill, 1964.
——.Collected Scientific Papers, Volume 2, Cambridge, MA: MIT Press, 1966.
Samuelson, P. A.; Nordhaus, W. D.Economics, 16th edition, Boston: Irwin McGraw-Hill, 1998.
——.Economics, 17th edition, Boston: Irwin McGraw-Hill, 2001.
Scitovsky, T. “Two Concepts of External Economies,”Journal of Political Economy 64, 1954, pg. 70–82.
Silberberg, E.Principles of Microeconomics, 2nd edition, Boston: Pearson, 1999.
Stigler, G. J.The Theory of Price, 3rd edition, New York: Macmillan, 1966.
Stockman, A. C.Introduction to Economics, 2nd edition, Fort Worth: Dryden, 1999.
Tregarthen, T.; Rittenberg, L.Economics, 2nd edition, New York: Worth Publishers, 2000.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Butler, M.R., Garnett, R.F. Teaching the coase theorem: Are we getting it right?. Atlantic Economic Journal 31, 133–145 (2003). https://doi.org/10.1007/BF02319866
Issue Date:
DOI: https://doi.org/10.1007/BF02319866