Coase Theorem

Coase Theorem Definition

Coase theorem, named after Ronald Coase, is the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own. It states the primacy of private markets for sorting out the problems caused by the uncompensated impact of one person's actions on the well-being of a bystander (i.e. pollution from a factory) whenever there are no allocation costs (Mankiw, 2009).

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Coase Theorem references (4 of up to 20) *

• Coase, R.H. (1937), The Nature of the Firm, Economica, 4, pp.386–405.
• Coase, R.H. (1960), The Problem of Social Cost, Journal of Law and Economics, 3, pp.1-44.
• Coase, R.H. (1974), The Lighthouse in Economics, Journal of Law and Economics, 17(2), pp.357–376.
• Coase, R.H. (1991), Prize Lecture to the memory of Alfred Nobel. The Institutional Structure of Production, December 9, available at: http://www.nobelprize.org/nobel_prizes/economics/laureates/1991/coase-lecture.html

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