Ronald Coase has died, inspiration and hope for those of us who don't write 10 papers a year. But they have to be good ones.
Two insightful retrospectives:
David Henderson, in the Wall Street Journal, also here at Hoover (no paywall)
Dylan Matthews in the Washington Post "Wonkblog" "Here are five of his papers you need to read"
When I got to Chicago, it seemed that people, especially graduate students, would shout "Coase theorem" at totally random moments. The pattern has since started to make some sense.
"When I got to Chicago"
ReplyDeleteIf my understanding is correct, you were born at U of C hospital.
Thanks for the plug, John. BTW, although I perused Dylan Matthews's piece, my quick impression is that he did an amazingly good job.
ReplyDeleteCoase Theorem:
ReplyDeletehttp://en.wikipedia.org/wiki/Coase_Theorem
"This counterintuitive insight—that the initial imposition of legal entitlement is irrelevant because the parties will eventually reach the same result—is Coase’s invariance thesis."
Eventually can be a long, long, long, long time.
And of course there is the small matter of transaction costs which the Coase Theorem assumes away - one of those simplifying assumptions to make the problem tractable.
DeleteHow did Coase deal with the hold-out problem? That would seem to be a problem if rights are dispersed but efficient use requires concentration even with zero transaction costs.
Coase always read Coase's theorem in the reverse. Because there are always transaction costs, it's very important how initial property rights are defined.
DeleteI recommend this recent interview with Coase on Econtalk:
http://www.econtalk.org/archives/2012/05/coase_on_extern.html
Coase: Well, it did. It changed their views. It changed their views in a very sensible way, because they went on to talk about something called the Coase Theorem, and I never liked "the Coase Theorem."
Russ: It is a common phrase. And I'll tell you why in a minute. But why don't you like it?
Coase: I don't like it because it's a proposition about a system in which there were no transaction costs. It's a system which couldn't exist. And therefore it's quite unimaginable.
"Coase always read Coase's theorem in the reverse."
DeleteThat's reassuring. It's a nice application of the contra-positive but I know that very few people (at least very few of the lawyers and judges I deal with) can understand or apply the contra-positive.
Charlie,
DeleteAnd it still doesn't answer Absalon's question: How did Coase deal with the hold out problem?
Did he assume infinite life agents?
Did he assume every person has his/her price (some variation of rational markets)?
If you reread or re-listen, you'll realize Coase rejects the question, because he rejects what his colleages think the "Coase Theorem" means.
ReplyDeleteThe no transaction cist environment was just a device he used ti explain his insight.
Coase last interview
ReplyDeletehttp://www.trubeta.com/#!coase/mainPage