Economics and Philosophy

Essay

DISPROVING THE COASE THEOREM?*

ANDREW HALPINa1

a1 Swansea University

Abstract

Fascination with the Coase Theorem arises over its apparently unassailable counterintuitive conclusion that the imposition of legal liability has no effect on which of two competing uses of land prevails, and also over the general difficulty in tying down an unqualified statement of the theorem. Instead of entering the debate over what exactly the theorem holds, this article suggests that the core of Coase's reasoning is flawed and to the extent that any version of the theorem relies upon this reasoning it can be disproved. The article commences by modelling the nature of the counter-intuitive thrust to the Coase Theorem, which is used to trace the development of Coase's reasoning, and ultimately to expose the flaw it contains. The heart of the article comprises the allegation of an error made by Coase when he transferred his core argument to the context of economic rents. Ancillary observations are made on the relationship between the Coasean analysis of characteristically legal problems and the conditions of general market equilibrium, and the theoretical status of Law-and-Economics.

Footnotes

* I am grateful to Luc Bovens for valuable editorial advice.