Externalities, Non-Separability and the Coase Theorem: A Mathematical Re-Exposition
8 Pages Posted: 29 Jan 2009 Last revised: 24 Nov 2010
Date Written: January 29, 2009
This note contributes to the Coase Theorem. The Coasian interaction between two producers is represented, according to a statement of Coase, as a straight problem of constrained maximization of the value of production. This formulation allows showing that the validity of the Coase's theorem for a two-by-two producers' economy does not depend on the form of cost function. This overcomes an unresolved controversy, fueled in a series of articles appeared in the AER in the 70's.
Keywords: Coase Theorem, Externalities
JEL Classification: B15, D23, D62
Suggested Citation: Suggested Citation