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The Problem of Internalisation of Social Costs and the Ideas of Ronald Coase


  • Enrico, Baffi


This work examines the influence of Coasian thought on the analysis of externalities as used by economists and legal economists. Ronald Coase, a Chicago scholar, advanced a series of critiques of the Pigovian tax system; the theorem that bears his name is merely the best known. In his 1960 work, he sought to demonstrate that the internationalisation of social costs was not always socially useful. In addition, he identified other institutional solutions to which systems can - and often do - resort. One of these solutions is to simply authorise the harmful activity without introducing mechanisms to internalise social costs. Beyond the abstraction of his ideas, Coase's method of analysis has not had a great influence on economists' thinking. His theorem, as it is commonly known, looks more like an elegant, abstract reflection then a tool for identifying institutional solutions to concrete societal problems. Among legal economists, however, Coase's teachings have had a greater influence. Unfortunately, even within this group of scholars, the conviction that external costs should, optimally, be internalised often emerges almost unconsciously in their literature. The risk inherent in this attitude lies in the possibility of finding systems for internalising social costs in legal institutions which do not appear to have such an underlying logic, as for example some kinds of tort liability.

Suggested Citation

  • Enrico, Baffi, 2007. "The Problem of Internalisation of Social Costs and the Ideas of Ronald Coase," MPRA Paper 7277, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7277

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    References listed on IDEAS

    1. Tam B. Vu & Byron Gangnes & Ilan Noy, 2008. "Is Foreign Direct Investment Good for Growth? Evidence from Sectoral Analysis of China and Vietnam," Working Papers 200801, University of Hawaii at Manoa, Department of Economics.
    2. L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters,in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314 World Scientific Publishing Co. Pte. Ltd..
    3. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    4. Vernon, Raymond, 1979. "The Product Cycle Hypothesis in a New International Environment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 255-267, November.
    5. Dunning, John H, 1979. "Explaining Changing Patterns of International Production: In Defence of the Eclectic Theory," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 269-295, November.
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    Cited by:

    1. Dieter Schmidtchen & Christian Koboldt & Jenny Monheim & Birgit Will & Georg Haas, "undated". "The Internalisation of External Costs in Transport: From the Polluter Pays to the Cheapest Cost Avoider Principle," German Working Papers in Law and Economics 2008-1-1214, Berkeley Electronic Press.

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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D60 - Microeconomics - - Welfare Economics - - - General

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