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.
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...
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