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Teaching the Coase Theorem: Are We Getting It Right?

Listed author(s):
  • Michael Butler


    (Department of Economics, Texas Christian University)

  • Robert Garnett


    (Department of Economics, Texas Christian University)

Registered author(s):

    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.

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    File Function: First version, 2002
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    Paper provided by Texas Christian University, Department of Economics in its series Working Papers with number 200202.

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    Length: 26 pages
    Date of creation: Jun 2002
    Publication status: Published in Atlantic Economic Journal, June 2003, pages 133-145
    Handle: RePEc:tcu:wpaper:200202
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    1. Warren J. Samuels & Steven G. Medema & A. A. Schmid, 1997. "The Economy as a Process of Valuation," Books, Edward Elgar Publishing, number 1088.
    2. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62, pages 143-143.
    3. Klaes, Matthias, 2000. "The History of the Concept of Transaction Costs: Neglected Aspects," Journal of the History of Economic Thought, Cambridge University Press, vol. 22(02), pages 191-216, June.
    4. Richard A. Posner, 1993. "Ronald Coase and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 195-210, Fall.
    5. Deirdre N. McCloskey, 1998. "Other Things Equal: The So-Called Coase Theorem," Eastern Economic Journal, Eastern Economic Association, vol. 24(3), pages 367-371, Summer.
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