Understanding the Problem of Social Cost

46 Pages Posted: 5 Jun 2014

See all articles by Brett M. Frischmann

Brett M. Frischmann

Villanova University - School of Law

Alain Marciano

Université de Montpellier; Université Montpellier I - Montpellier Recherche en Economie (Montpellier Research in Economics) MRE

Date Written: May 28, 2014

Abstract

Coase always expressed dissatisfaction with neo-classical economics and advocated for a new approach. Rather than using toy mathematical models built from unrealistic, idealized assumptions, Coase preferred to study real-world contexts, including actual legal cases. He demonstrated the utility of his approach in "The Problem of Social Cost". Yet almost all of Coase's contemporaries completely ignored Coase's call for a new approach and his sustained use of legal cases to illustrate his arguments and to situate his analysis in reality. In this paper, we show that the profession interpreted Coase's seminal article exactly the opposite of what he had intended, and reduced his analytical contributions to a toy model of the exact sort he was criticizing. This ironic history of the most cited article both in law and in economics helps us understand the development of ideas within both fields and how disciplinary blinders shape intellectual progress.

Keywords: Coase, The Problem of Social Cost, Liability, Law and Economics

JEL Classification: K00, K10

Suggested Citation

Frischmann, Brett M. and Marciano, Alain, Understanding the Problem of Social Cost (May 28, 2014). Cardozo Legal Studies Research Paper No. 435. Available at SSRN: https://ssrn.com/abstract=2445819 or http://dx.doi.org/10.2139/ssrn.2445819

Brett M. Frischmann

Villanova University - School of Law ( email )

299 N. Spring Mill Road
Villanova, PA 19085
United States

Alain Marciano (Contact Author)

Université de Montpellier ( email )

Avenue Raymond Dugrand, CS 79606
Montpellier Cedex 1, F-34000
France

Université Montpellier I - Montpellier Recherche en Economie (Montpellier Research in Economics) MRE ( email )

Montpellier
France

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