Pareto Efficiency, the Coase Theorem, and Externalities: A Critical View

Andrea Ventura, Carlo Cafiero and Marcello Montibeller

Journal of Economic Issues, 2016, vol. 50, issue 3, 872-895

Abstract: We offer a critical review of the Paretian definition of efficiency by noting its correspondence with the description of the logic underpinning market relationships. With reference to Ludwig Wittgenstein’s analysis of the value content of tautologies, we discuss the tautological nature of the propositions regarding the efficiency of exchange and market equilibria when there are externalities. We critically review the debate on the Coase theorem, its treatment of externalities, and the contrast with the Pigouvian approach, taking into account the distinction between propositions that are true based on their formal logical structure and propositions that are true with respect to their correspondence to actual states of affairs. We also reveal and discuss the logical inconsistencies — in particular, the one between the Coase theorem and perfect competition — and the practical consequences of the application of Pareto efficiency to the analysis of externalities.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/00213624.2016.1213595 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:jeciss:v:50:y:2016:i:3:p:872-895

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MJEI20

DOI: 10.1080/00213624.2016.1213595

Access Statistics for this article

More articles in Journal of Economic Issues from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().