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Teaching the coase theorem: Are we getting it right?


  • Michael Butler
  • Robert Garnett


The authors examine current textbook representations of Coase's analysis of negative externalities [Coase, 1960]. Standard treatments identify Coase's ideas with Stigler's Coase Theorem: a zero transaction cost world in which efficient solutions emerge automatically, regardless of legal rules and the initial allocation of rights. Yet Coase's seminal paper breaks from this mode of analysis. The authors use this intellectual history to distinguish two approaches to negative externalities: blackboard (Pigou, Stigler, Samuelson) and Coasean. They survey 45 microeconomics textbooks and find that 80 percent misrepresent Coase's arguments. They argue that a Coasean approach increases students' critical thinking skills by challenging them to move beyond simple laissez faire or interventionist solutions. Copyright International Atlantic Economic Society 2003

Suggested Citation

  • Michael Butler & Robert Garnett, 2003. "Teaching the coase theorem: Are we getting it right?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(2), pages 133-145, June.
  • Handle: RePEc:kap:atlecj:v:31:y:2003:i:2:p:133-145
    DOI: 10.1007/BF02319866

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    References listed on IDEAS

    1. Hirshleifer,Jack & Glazer,Amihai & Hirshleifer,David, 2005. "Price Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521523424, March.
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    Cited by:

    1. Leslie Rosenthal, 2007. "Economic Efficiency, Nuisance, and Sewage: New Lessons from Attorney-General v. Council of the Borough of Birmingham, 1858–95," The Journal of Legal Studies, University of Chicago Press, vol. 36(1), pages 27-62, January.
    2. Yalcintas, Altug, 2011. "On error: undisciplined thoughts on one of the causes of intellectual path dependency," MPRA Paper 37911, University Library of Munich, Germany.
    3. Yalcintas, Altug, 2010. "The ‘Coase Theorem’ vs. Coase theorem proper: How an error emerged and why it remained uncorrected so long," MPRA Paper 37936, University Library of Munich, Germany.
    4. Tamara Todorova, 2007. "The Coase Theorem Revisited: Implications for Economic Transition," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 189-201, June.
    5. Andrew Halpin, 2011. "Coase’s world and Coase’s blackboard," European Journal of Law and Economics, Springer, vol. 31(1), pages 91-109, February.

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