Bryan Caplan  

Coasean Fortune Cookie of the Day

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The Coase Theorem is a tautology, but as tautologies go, it's an inspiration.  Once upon a time, it inspired me to say, "Coasean reasoning only holds perfectly with zero transactions costs. But the Coasean insight that creative bargaining is a very good way to resolve conflict holds even when transactions costs are substantial."  But a much more quotable version appears in the show Dirty Sexy Money (Episode 1-8, "The Country House")
Well, I think that life is very creative and surprising, and sometimes we find solutions where we thought there weren't any.
Never mind that this is part of a lawyer's effort to work out a modus vivendi between a philandering politician, his wife, and his transgendered lover.  It's still fortune cookie to live by.


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COMMENTS (6 to date)
RL writes:

Bryan,

You say: ""Coasean reasoning only holds perfectly with zero transactions costs. But the Coasean insight that creative bargaining is a very good way to resolve conflict holds even when transactions costs are substantial."

The first claim is clearly correct, and even the more modest claim that Coasean reasoning is insightful when transaction costs are low is easily argued. But your second sentence seems overbroad. You aren't claiming, are you, that prior to Coase no one thought creative bargaining is a very good way to resolve conflicts, even when transaction costs are substantial?

Ed Hanson writes:

Bryan,

You watch way too much television.

Brent Wheeler writes:

This approach is how I was taught the value of Coase - and I never really got the full value till I started to see that much of the beauty of Coase lies in the fact that he absolutely forces you to acknowledge, then model subsequent behaviour on the fact that the situations he analyses involve joint interests - that's the point of departure.

To me this is a better way of understanding than starting with the notion of "conflict". Mere semantics? Maybe - but I find the heuristic more instructive - and less inclined to bring out the moralistic judge in us.

Richard writes:

To Brent Wheeler:
Can you refer me to any written material on this approach to Coase--the joint interests point of departure?

Grant writes:

Coasian provision of public goods takes transaction costs into account. I think this is a feature, not a bug, because costs are real and use scarce resources. It should give 'public' entrepreneurs incentives to create ways to lower transaction costs; but does this actually occur?

wintercow20 writes:

But I think people take Coase too literally. Without reading him closely, they might come to think that all costs, all transactions costs, are relevant. They are not - and the Coasean fortune cookies if far more applicable than an initial reading of a summary of the idea might indicate. For example, not all externalities are relevant when we are thinking of non-rivalrous goods - so not all parties need to negotiate - only those with extreme preferences.

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