The Pure Economics of the Coase Theorem

This paper undertakes a rigorous examination of the Coasian bargain in the context of an otherwise competitive economy. The key feature of the model is to define technically efficient production functions as solutions to complex mathematical problems. Without potential externalities, those problems are solved by internal administrative decisions without the aid of a price mechanism. When externalities arise, these decision require cooperative administration. Since mathematical proofs of the impossibility of the Case Theorem proceed from the presumption of imperfect administration, they beg the question through mutually contradictory assumptions. Correction of this flaw yields a pure economic version of the Coase Theorem which largely supports the anecdotal versions.