Coase Theorem



Coasetheorem is a legal and economic theory which argues that, where thereare complete competitive markets without transaction costs, anappropriate set of inputs and outputs, bargaining will result to anefficient outcome despite the initial allocation of property orexisting rights to property. In real sense, obstacles to bargainingor inadequately explained property rights can hinder Coasianbargaining. The relevance, correctness and applicability of Coasetheorem to legal and economic policy have been questioned by Medema(2014) who argues that, in economics field and literature, the theoryis surrounded by issues including its lack of stability in what itstands for.

Inthe first two decades of the existence of Coase theory inenvironmental economics, the validity of the theory was largelyappreciated but its significance to economic analysis ofenvironmental concerns was largely dismissed (Lai &amp Lorne, 2015).In 1972, one of the critics of the theory, Stuart Mestelman preciselyargued that Coase’s invariance result was critical in regard to thecurrent concerns on pollution of the environment. This notion isechoed, for instance in Coase’s theorem treatment of the arisingenvironmental economics literature during the time. Generally, theperception was that, there was something that was being jeopardized,both to the sphere of policy related alternatives for dealing withissues of the environment and to the question of the relativeconsequences of holding one party or another such as polluters andtheir victims liable for externality-associated harms (Medema, 2013).

Ultimately,Coase theorem fails to address the reality of legal and economicdimensions especially when it comes to issues of the environment. Itignores the basic principles under which economic operations arefounded. This therefore puts at stake the efforts for environmentalconservation at times when the world is struggling with the effectsof global warming.


Lai,L. W., &amp Lorne, F. T. (2015). The Fourth : Stateplanning rules and spontaneity in action. PlanningTheory,14(1),44-69.

Medema,S. G. (2013). TheWorld (s) in the Model (s): The in the Long Run.Working Paper, University of Colorado, Denver.

Medema,S. G. (2014). The curious treatment of the Coase theorem in theenvironmental economics literature, 1960–1979. Reviewof Environmental Economics and Policy,ret020.