An unexpected critique of the Coase Theorem

The Coase Theorem is of course famous and influential in both economics and political science. This critique, which suggests that it exemplifies the problems of economics, is rather less famous, despite its interesting source:

I think the success of the Coase Theorem — because it’s discussed all over the place — is an interesting illustration of what’s wrong with economics … I think it’s useful because you can show, using it, the type of contracts that would have to be made in order to have an efficient economic system. But then you have to introduce, having done that, the obstacles to doing it. Then you see how the system actually works. … The article has been very successful for the wrong reasons. To people who like success that’s all right, but to people who are concerned with the development of the subject it’s not a very good thing.

One Response to An unexpected critique of the Coase Theorem

  1. politicalEconomist May 17, 2012 at 4:01 am #


    The paper is called “The Problem of Social Cost”. The point of the theorem is that transactions costs are the issue and not the externality per se.

    This is not a critique of the theorem, it is a critique of the misapplication of the theorem.