Coasean Blind Spots: Charting the Incomplete Institutionalism

Abstract

This Article outlines what I refer to as the "incomplete institutionalism" of law and economics, a condition that weakens the field's predictions for bargaining and what it has to say about regulatory choice. I chart this condition, borne out of our failure to finish the work that Coase began on institutions, in the area of environmental law. Scholars concerned with the pollution problem make ample use of Calabresi and Melamed's Cathedral framework, one of the most powerful lenses in legal scholarship. Yet as it is applied in the form of arguments over transaction costs, there are cracks in the glass that blur how we choose among competing regulations. A more complete account of institutions, building on advancements in organization theory, reveals a second set of transaction costs that arise as firms make decisions and carry out regulatory initiatives. These costs rival the holdout, free rider, and bilateral monopoly costs that are of primary interest to property theorists. If properly addressed, they can lead to dramatic improvements in environmental protection.

Keywords: Property Theory, Transaction Costs, New Institutionalism, Law and Economics, Environmental Regulation

JEL Classification: K11