The Coase Theorem and Opportunity Cost

University of Canberra Working Paper No. ABF01-01

22 Pages Posted: 21 Nov 2001

Date Written: November 2001

Abstract

The Coase Theorem maintains that, absent transaction costs, the assignment of legal liability for external damage caused by a given product will not affect the levels of production of the damaging good (or of the damaged good). Over the past decade a sporadic debate has emerged in the law and economics literature concerning the validity of the Coase Theorem in a world without transaction costs. Daniel Posin has proposed circumstances in which the Coase Theorem is purported to fail. This paper reviews the arguments proposed by Posin, and explains why they are apparently erroneous. The reasoning applied does not rely on the existence of wealth effects or explicit changes in factor prices in response to rate of return differentials. Furthermore, while my model does not rely on "one-owner" analysis, the results derived are identical to those under the "one-owner" model.

Keywords: Coase Theorem, Property Rights

JEL Classification: K0

Suggested Citation

Wilson, Mark D., The Coase Theorem and Opportunity Cost (November 2001). University of Canberra Working Paper No. ABF01-01, Available at SSRN: https://ssrn.com/abstract=291494 or http://dx.doi.org/10.2139/ssrn.291494

Mark D. Wilson (Contact Author)

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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