Misinterpreting the Coase TheoremRobin Hahnel and Kristen A. Sheeran Journal of Economic Issues, 2009, vol. XLIII, issue 1, pages 215-238 Abstract: The Coase theorem is often interpreted as demonstrating why private negotiations between polluters and victims can yield efficient levels of pollution without government interference. It is considered by many to provide the theoretical underpinnings for "free-market" solutions to environmental problems. This article explains why misinterpreting Coasian negotiations as a market driven process leads to erroneous conclusions. More importantly, this article demonstrates why negotiations between polluters and victims would fail to yield efficient outcomes >i>even>/i> if property rights were well-defined, >i>even>/i> if there were only a single victim, >i>even if>/i> negotiations entailed no transaction costs, and >i>even if>/i> negotiators behaved rationally and reached a successful agreement. Unlike other critiques of the Coase theorem that focus on irrational behavior and transaction costs, our critique identifies perverse incentives that arise even under conditions most favorable to the theorem. By accepting, rather than challenging, the premises of the theorem, our analysis provides an "internal" critique that strengthens well-known "external" criticisms. Keywords: Coase theorem; free market environmentalism; environmental policy; property rights (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:mes:jeciss:v:xliii:y:2009:i:1:p:215-238 Access Statistics for this article More articles in Journal of Economic Issues from Inderscience Enterprises Ltd |
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