Coase Theorem

Coase Theorem

Given zero transaction costs, actors will bargain to a position of maximum aggregate utility regardless of the initial distribution of entitlements.

See Calabresi corollary
See also Epstein restatement

The Coase Theorem is also vulnerable to endowment effects. For example, the holder of a property rule right such as an injunction may demand more payment to waive it than he would have paid to override an opposite injunction held by another. However, two parties' overlapping endowment effects may not reverse the relative value of the good to the parties so as to change the Coasean result. Also, corporations will probably not be subject to the aesthetic or psychological side of endowment effects.

But see Farnsworth, "A Glimpse Inside the Cathedral" (Farnsworth p. 752) (study of twenty thousand nuisance cases showed no post-judgment bargaining, attributed to parties' mutual acrimony)

11 page(s) referring to Coase Theorem
Calabresi corollary
property rule
Hand Formula
Compensatory Damages
strict liability
liability rule
Fontainebleau Hotel v 45-25
Breach of Duty
nuisance
standard of care
Torts Theories

5 page(s) referred to by Coase Theorem
Calabresi corollary
Epstein restatement
entitlement
property rule
transaction costs