The Coase theorem [] (after Ronald Coase) is a theorem of the political economy. It assumes participants of a market of problems, which result from external effects can solve, if them only about the Allokation of resources to negotiate to be able and these without costs to exchange be able.

Acceptance

For the Coase theorem is provided that the official contacts easily an agreement over the resource allocation obtain can. One assumes with the exchange between the participants no transaction costs develop.

The moreover one a complete clarity must exist over the rights of disposal of the official contacts, since otherwise none of the two participants can decide on the damage/use.

Perfect information of the economically acting individuals.

Idea

The Coase theorem assumes markets on the given assumption deal very efficiently with Therefore markets in a the position are to eliminate the problems attached at independently and to divide resources on pareto efficient way.

Example

Initial considerations

We regard two neighbours: Neighbour A hears gladly loud music, has thus a use. Its neighbour B however is disturbed of the music, on him works thus negative external effects of the music consumption of his neighbour.

Obviously it must be weighed out altogether whether the use has, A by hearing loud music, which exceeds costs of B by noise disturbance. If this would not like that be, then would be overallally economic regards a complete renouncement of hearing the music

Quite on activity (laissez-faire system/damage right)

It is now accepted that A has a claim to hearing loud music.

Assumed neighbour A would have a use of 100 from the music consumption "€, while B carries its neighbour costs by the music consumption at a value of 200 "€. If B would offer now 150 to its neighbour A "€, so that this does without hearing the music, then both would be better posed, if A dealt with the offer: A would have then even 150 instead of 100 "€ use, B would have only 150 instead of 200 "€ costs.

Assumed A would have however by hearing its music a use from now 200 "€, while B would have only 100 "€ costs. B would have to offer now more than 200 to A "€, so that it turns its music off. This would exceed however its past costs. Economicalally seen it would be thus efficient, if A could hear its music further, since B would be to be zuzumuten the now comparatively small costs based on the use of A.

Negotiated solutions include also continuous decreases of the volume. Thus A could its volume possibly be induced to it, when hearing the music bspw. to reduce 100% to only 60%, if the transfer contribution of B lets this appear delightful. A market equilibrium results, even if the costs of the sound reduction (e.g. Schallschutzwand or removal) by the premium of the noise victim to be financed can.

Quite on undisturbedness (causer adhesion

In the past scenario it was accepted that A has a claim to hearing music, although it can get involved naturally voluntarily in a negotiated solution with B. We amend the scenario now: Assumed it would be now forbidden hearing loud music. B could force A now thus to do without the music consumption. Now however A could offer similarly too above B money to be allowed to hear loud music. B would deal with the offer if A offered to it more moneys than it has costs by the music.

Now the legal position of the official contacts changed completely. It is however insignificant whether A has a claim to damage or B a claim to omission; from the negotiated solution efficiency results economicalally seen also here.

History

The Coase theorem was described 1960 by Ronald Coase in the article The problem of OF Social Cost. The designation Coase theorem decreases/goes back on G.J. Stigler (1966).

Evaluation/criticism

Under the conditions of missing transaction costs and with free negotiation possibilities secured by the legal order an optimal solution can be obtained with the Coase theorem, which is superior to a solution over the Pigou tax for example. The comparison of the two above examples shows that it is even insignificant here, how the vested titles are distributed. A comes off nevertheless.

When being present transaction costs however the optimal solution can be missed.

Transaction costs

A negotiated solution would fail, if transaction costs would oppose it, about because the negotiation only over expensive lawyers to be regulated could or however language barriers the negotiations oppose. If the costs of a lawyer or an interpreter exceed the use of the contract, then no problem solution takes place.

Extortion in the laissez-faire system

Since the causer of the external effects possesses maximum negotiation power, he can use these against the damage in the negotiations. This leads from allokativer view still to the pareto optimal result, can become however for the causer a lucrative branch of trade political pension (rent seeking)).

Organization problem at large groups of involved one

The group of the damages is usually very large and leads to substantial transaction costs of the treaty negotiations. Here results the additional problem free rider behavior ( free riding), i.e. individual damages take part not in the compensation payments to the causer, do not profit however nevertheless by the of the external effect.

National solution

As mediators the state can intervene in the negotiations, in order to lower these transaction costs. This is about conceivable if a great many groups are involved in a negotiation and the state for some of it a party seizes. Also the state generates perhaps certain transaction costs, which are however disproportionate, since only the state negotiates as a group, however for a multiplicity of past groups. The state helps to bundle thus for example several times arising information costs central and provides in such a way for cost advantages.

Further aspects of evaluation

Distribution effects are not considered. Thus it makes a difference einzelwirtschaftlich for the participants quite whether a right to activity or a right insists on undisturbedness. This distributive effect is not appreciated however.

It is critically also marked that information asymmetries can lead to the fact that the market participants estimate their use and/or damage wrongly. In the sense of the principle aluminum agent theory such unequal weights of the official contacts can be used, if they act strategically.

Result

The Coase theorem shows that negotiated solutions can function frequently. When being present transaction solutions national interventions are conceivable, although their employment should be weighed out exactly.

Literature

• R.H. Coase: The problem of OF Social Cost, in: Journal OF Law and Economics. Volume. 3 (1960), P. 1-44.
• Gregor Enderle, Ansgar Nolte: The Coase theorem. In: Economiceconomics study (WiSt), 28. Jg., number 4 (April 1999), P. 201.

See also: Internalisierung

Articles in category "Coase theorem"

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