The Value/Fact Distinction: Coase's Theorem Unifies Normative and Positive Economics

Abstract:     
I show that in a true Coasean world - a world with no transaction costs - there would be no disagreement on moral questions. There would be no disagreement on what the appropriate distribution of income should be. There would be no disagreement on the question of capital punishment or abortion. If the government tried to re-distribute income contrary to the no-transaction cost ideal, then in a Coasean world, the beneficiaries would return the money to those from whom it was taken by taxation. Empirical studies of a near-Coasean economy show this predicted return occurring. Thus disagreements on values are actually disagreements over facts. I shall argue that the Coase Theorem itself suggests a moral rule: act to minimize transaction costs.

Number of Pages in PDF File: 31

Keywords: Coase Theorem, nomative economics, positive economics, social norms, information cost, transaction cost, income distribution, value/fact distinction

JEL Classification: A1, A12, A13, D31, K00, K23, K32, L82

working papers series