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Teaching the Coase Theorem: Are We Getting It Right?


  • Michael Butler

    () (Department of Economics, Texas Christian University)

  • Robert Garnett

    () (Department of Economics, Texas Christian University)


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.

Suggested Citation

  • Michael Butler & Robert Garnett, 2002. "Teaching the Coase Theorem: Are We Getting It Right?," Working Papers 200202, Texas Christian University, Department of Economics.
  • Handle: RePEc:tcu:wpaper:200202

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    References listed on IDEAS

    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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    More about this item


    Coase; teaching;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics


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