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Coase theorem

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Coase Theorem

The Coase Theorem is an economic theory developed by Nobel Prize-winning economist Ronald Coase in 1960. It states that when there are no transaction costs, an efficient allocation of resources will be achieved regardless of the initial allocation of property rights. The theorem is based on the idea that when two parties are involved in a dispute, they can negotiate a mutually beneficial outcome if they are able to bargain without cost. The Coase Theorem has been used to explain a variety of economic phenomena, including the effects of externalities, the role of property rights, and the behavior of firms.

History of the Coase Theorem

The Coase Theorem was first proposed by Ronald Coase in his 1960 paper, โ€œThe Problem of Social Cost.โ€ In this paper, Coase argued that when two parties are involved in a dispute, they can negotiate a mutually beneficial outcome if they are able to bargain without cost. He argued that the initial allocation of property rights is irrelevant to the outcome of the negotiation, as long as the parties are able to bargain without cost. Coaseโ€™s paper was highly influential, and the Coase Theorem has since become a cornerstone of economic theory.

Comparison of Coase Theorem and Other Theories

Theory Property Rights Transaction Costs
Coase Theorem Irrelevant None
Pigouvian Tax Relevant High
Command and Control Relevant Low

Summary

The Coase Theorem is an economic theory developed by Nobel Prize-winning economist Ronald Coase in 1960. It states that when there are no transaction costs, an efficient allocation of resources will be achieved regardless of the initial allocation of property rights. The theorem has been used to explain a variety of economic phenomena, including the effects of externalities, the role of property rights, and the behavior of firms. For more information about the Coase Theorem, please visit the websites of the American Economic Association, the National Bureau of Economic Research, and the University of Chicago.

See Also

  • Externalities
  • Property Rights
  • Pigouvian Tax
  • Command and Control
  • Negotiation
  • Transaction Costs
  • Efficient Allocation
  • Firm Behavior
  • American Economic Association
  • National Bureau of Economic Research

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