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The Coase Theorem and Arthur Cecil Pigou

18 Pages Posted: 15 Oct 2008 Last revised: 29 Jan 2010

Herbert J. Hovenkamp

Univ. of Pennsylvania Law and Wharton Business

Date Written: January 13, 2010


In "The Problem of Social Cost" Ronald Coase was highly critical of the work of Cambridge University Economics Professor Arthur Cecil Pigou, presenting him as a radical government interventionist. In later work Coase's critique of Pigou became even more strident. In fact, however, Pigou's Economics of Welfare created the basic model and many of the tools that Coase's later work employed. Much of what we today characterize as the "Coase Theorem," including the relevance of transaction costs, externalities, and bilateral monopoly, was either stated or anticipated in Pigou's work. Further, Coase's extreme faith in private bargaining led him to fail to see problems that Pigou saw quite clearly and that remain with us to this day.

Keywords: Coase Theorem, Pigou, Social Cost, Law and Economics, Economic History, Legal History, Marginalism

JEL Classification: B1, B2, K2, L2, N, N2, N8

Suggested Citation

Hovenkamp, Herbert J., The Coase Theorem and Arthur Cecil Pigou (January 13, 2010). Arizona Law Review, Vol. 51, p. 633, 2009; U Iowa Legal Studies Research Paper No. 08-44. Available at SSRN:

Herbert Hovenkamp (Contact Author)

Univ. of Pennsylvania Law and Wharton Business ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
319-512-9579 (Phone)

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