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The Coase theorem reconsidered: The role of alternative activities

  • Kuechle, Graciela
  • Rios, Diego

The main statement put forth by Coase in his essay on the problem of social cost (Coase, 1960) is that given zero transactions costs, the assignment of entitlements to perform actions that cause negative externalities does not prevent the agents from reaching an efficient outcome through bargaining. Coase's argument decisively depends upon the agents having resources to bargain. Since rents, understood as the return to a certain activity in excess of its opportunity cost, are natural providers of such resources, they play a vital role in the logic of the Coase theorem. It has been recently argued (Halpin, 2007) not only that Coase provides an incomplete analysis of rents but also that he is committed to a flawed argument over rents by neglecting the role of alternative activities. This paper recasts Coase's argument in the presence of rents and alternative activities to show that the theorem can be vindicated.

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Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 129-134

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Handle: RePEc:eee:irlaec:v:32:y:2012:i:1:p:129-134
Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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  1. Starrett, David A., 1972. "Fundamental nonconvexities in the theory of externalities," Journal of Economic Theory, Elsevier, vol. 4(2), pages 180-199, April.
  2. Richard McKelvey & Talbot Page, 2000. "An Experimental Study of the Effect of Private Information in the Coase Theorem," Experimental Economics, Springer, vol. 3(3), pages 187-213, December.
  3. Usher, Dan, 1998. "The Coase theorem is tautological, incoherent or wrong," Economics Letters, Elsevier, vol. 61(1), pages 3-11, October.
  4. Halpin, Andrew, 2007. "Disproving The Coase Theorem?," Economics and Philosophy, Cambridge University Press, vol. 23(03), pages 321-341, November.
  5. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
  6. Shapiro, David L., 1974. "A note on rent and the Coase theorem," Journal of Economic Theory, Elsevier, vol. 7(1), pages 125-128, January.
  7. Elizabeth Hoffman & Matthew Spitzer, 1981. "The Coase Theorem: Some Experimental Tests," Discussion Papers 470, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. W. Mark Crain & David Saurman & Robert D. Tollison, 1978. "The Coase Theorem and Quasi-Rents: Correcting the Record," Public Finance Review, , vol. 6(2), pages 259-262, April.
  9. Richard A. Tybout, 1972. "Pricing Pollution and Other Negative Externalities," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 252-266, Spring.
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