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Institutional Change and Factor Movement: A Test of the Coase Theorem's Invariance Principle

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Author Info
Martin B. Schmidt () (Department of Economics, College of William and Mary)

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Abstract

The strong version of the Coase Theorem suggests that in the absence of transactions costs, the distribution of resources is invariant to the assignment of the rights to those resources. While the theoretical work that underlies the Theorem is vast, the empirical work is less available. The obvious reason being the difficulty in finding real world examples of markets that have experienced "rights" changes. Such a change however has occurred in Major League Baseball. Starting in the late 1970s the "rights" of players were switched from owners to players. This allows us to examine if the distribution of players was impacted by the change. If players switched teams more or less at the same rate before and after the introduction of free agency, this would support the Coase Theorem. In the end, the characteristics of player movement do appear to have been impacted by the re-assignment of rights and therefore are inconsistent with the predictions of the strong version of the Coase Theorem.

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Publisher Info
Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 47.

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Length: 23 pages
Date of creation: 13 Nov 2006
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Handle: RePEc:cwm:wpaper:47

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Related research
Keywords: Coase Theorem Property Rights Resource Distribution Major League Baseball

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D30 - Microeconomics - - Distribution - - - General

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