# Coase Theorem

**DOI:**https://doi.org/10.1007/978-1-4614-7753-2_29

## Definition

Assuming the property rights are well defined and that the costs of transacting are zero, parties to an externality will resolve the dispute efficiently, and the outcome will be unaffected by to which party rights are initially assigned.

## Introduction

The Coase theorem was derived from the negotiation result laid out by Ronald Coase in his 1960 article, “The Problem of Social Cost” (1960), after having first been articulated in his discussion of the allocation of broadcast frequencies a year earlier (Coase 1959). The theorem, so named by George Stigler (1966, p. 113), has been stated in a variety of ways by the thousands of authors who have invoked it over the last five decades, but the essentials are as follows: Assuming the property rights are well defined and that the costs of transacting are zero, parties to an externality will resolve the dispute efficiently, and the outcome will be unaffected by to which party rights are initially assigned. In short, rights matter, but...

## References

- Allen DW (1990) What are transaction costs? Res Law Econ 14:1–18Google Scholar
- Coase RH (1959) The federal communications commission. J Law Econ 2(1):1–40CrossRefGoogle Scholar
- Coase RH (1960) The problem of social cost. J Law Econ 3:1–44CrossRefGoogle Scholar
- Demsetz H (1964) The exchange and enforcement of property rights. J Law Econ 7:11–26CrossRefGoogle Scholar
- Kahneman D, Knetsch JL, Thaler RH (1990) Experimental tests of the endowment effect and the Coase theorem. J Pol Econ 98(6):1325–1348CrossRefGoogle Scholar
- Medema SG, Zerbe RO Jr (2000) The Coase theorem. In: Boudewijn BBA, Geest GD (eds) The encyclopedia of law and economics. Edward Elgar, Aldershot, pp 836–892Google Scholar
- Mishan EJ (1971) The postwar literature on externalities: an interpretive essay. J Econ Lit 9(1):1–28Google Scholar
- Stigler GJ (1966) The theory of price. Macmillan, New YorkGoogle Scholar

## Further Reading

- Ayres I, Talley E (1995) Solomonic bargaining: dividing a legal entitlement to facilitate coasean trade. Yale Law J 104(5):1027–1117CrossRefGoogle Scholar
- Buchanan JM (1973) The Coase theorem and the theory of the state. Nat Resour J 13:579–594Google Scholar
- Calabresi G (1991) The pointlessness of pareto: carrying Coase further. Yale Law J 100:1211–1237CrossRefGoogle Scholar
- Calabresi G, Melamed AD (1972) Property rules, liability rules and inalienability: one view of the cathedral. Harv Law Rev 85(6):1089–1128CrossRefGoogle Scholar
- Coase RH (1988) Notes on the problem of social cost. In: The firm, the market, and the law. University of Chicago Press, Chicago, pp 157–185Google Scholar
- Cooter R (1982) The cost of Coase. J Leg Stud 11(1):1–33CrossRefGoogle Scholar
- Demsetz H (1972) When does the rule of liability matter? J Leg Stud 1(1):13–28CrossRefGoogle Scholar
- Ellickson RC (1986) Of Coase and cattle: dispute resolution among neighbors in Shasta County. Stanford Law Rev 38(3):623–687CrossRefGoogle Scholar
- Farber DA (1997) Parody lost/pragmatism regained: the ironic history of the Coase theorem. Va Law Rev 83:397CrossRefGoogle Scholar
- Halteman J (2005) Externalities and the Coase theorem: a diagrammatic presentation. J Econ Educ 36(4):385–390CrossRefGoogle Scholar
- Hoffman E, Spitzer ML (1982) The Coase theorem: some experimental tests. J Law Econ 25(1):73–98CrossRefGoogle Scholar
- Medema SG (1994) Ronald H Coase. Macmillan, LondonCrossRefGoogle Scholar
- Medema SG (1999) Legal fiction: the place of the Coase theorem in law and economics. Econ Philos 15(2):209–233CrossRefGoogle Scholar
- Medema SG (2009) The hesitant hand: taming self-interest in the history of economic ideas. Princeton University Press, PrincetonCrossRefGoogle Scholar
- Parisi F (2003) Political Coase theorem. Public Choice 115(1/2):1–36CrossRefGoogle Scholar
- Posner RA, Parisi F (2013) The Coase theorem, vol 2. Edward Elgar, CheltenhamGoogle Scholar
- Samuels WJ (1974) The Coase theorem and the study of law and economics. Nat Resour J 14:1–33Google Scholar
- Usher D (1998) The Coase theorem is tautological, incoherent or wrong. Econ Lett 61(1):3–11CrossRefGoogle Scholar