Making Coasean Property More Coasean

45 Pages Posted: 10 Feb 2011  

Thomas W. Merrill

Columbia University - Law School

Henry E. Smith

Harvard Law School

Date Written: February 9, 2011

Abstract

In his pioneering work on transaction costs, Ronald Coase presupposed a picture of property as a bundle of government-prescribed use rights. This picture is not only not essential to what Coase was trying to do, but its limitations emerge when we apply Coaseā€™s central insights to analyze the structure of property itself. This leads to what we term the Coase Corollary: in a world of zero transaction costs the nature of property does not matter to allocative efficiency. But as with the Coase Theorem itself, the real point is the implication for a positive transaction cost world: we need to subject the notion of property to a comparative institutional analysis. Because transaction costs are positive, it is no accident that property is defined in terms of things as a starting point, that uses are grouped under exclusion rights, and that in rem rights are widely employed: these features of property receive a transaction cost explanation. Simple lumpy packages of property rights motivated by transaction costs form an important baseline that furnishes presumptive answers to bilateral use conflicts. A more thoroughly Coasean approach points back to a picture of property more like the traditional one furnished by the law.

Keywords: Coase Theorem, Property, Bundle of Rights, Coase Corollary, Transaction Costs, Radio Spectrum, Lighthouse

JEL Classification: B25, B31, D23, K00, K11

Suggested Citation

Merrill, Thomas W. and Smith, Henry E., Making Coasean Property More Coasean (February 9, 2011). Journal of Law and Economics, Forthcoming; Harvard Law and Economics Discussion Paper No. 688; Columbia Public Law Research Paper No. 11-262. Available at SSRN: https://ssrn.com/abstract=1758846

Thomas W. Merrill

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-7946 (Phone)

Henry E. Smith (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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