A Limitation of the Coase Theorem When Applied to Negative Externalities

Aleksandar Kosuliev ()
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Aleksandar Kosuliev: "Angel Kanchev" University of Ruse

Economy and Economic Theory: Problems and Interactions, Conference Proceedings 2017, 2017, issue 1, 163-173

Abstract: In his landmark article "The Problem of Social Cost" Ronald Coase criticizes the Pigouvian tradition of dealing with negative externalities and suggests that in the presence of transaction costs courts should give property rights to the party that can put them to more productive use. This suggestion however is based on a static concept of efficiency and the economy in the long term is not the totality of the static moments, analyzed independently. If we add more periods and more participants the uncertainty in the economic system will increase and dynamic efficiency will be lower.

Keywords: Coase; negative externalities; property rights (search for similar items in EconPapers)
JEL-codes: A00 (search for similar items in EconPapers)
Date: 2017
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