Economics and Philosophy


Taking the Coase Theorem Seriously

Richard D. McKelveya1 and Talbot Pagea2

a1 California Institute of Technology

a2 Brown University

It is sometimes believed that technical apects of a theorem have little to do with the policy implications of the theorem. On the contrary, in this paper we argue that for the Coase Theorem, the technical details are very important in understanding the potential policy implications, since the two interact in a way that leads to a dilemma: a formally correct version of the theorem that yields the usual conclusions requires assumptions that are too restrictive to give the theorem much policy relevance. On the other hand, relaxing the assumptions of the theorem to be sufficiently plausible to be applicable in real world settings modifies the conclusions of the theorem.