ARTICLE: A Primer on the Coase Theorem: Making Law in a World of Zero Transaction Costs Skip over navigation
LexisNexis® Browse Law Reviews and Treatises
Skip over navigation
Sign in with your® ID to access the full text of this article.
Order the full text of this article if you do not have a® ID.
US $22.00 (+ tax)

Copyright (c) 1998 DePaul University
DePaul Business Law Journal

ARTICLE: A Primer on the Coase Theorem: Making Law in a World of Zero Transaction Costs

Fall / Winter, 1998

11 DePaul Bus. L.J. 1


Michael I. Swygert * and Katherine Earle Yanes **



A. Brief Statement of the Coase Theorem

The Coase Theorem may be summarized as follows. If the parties to any actual or potential social arrangement could enter into marketplace transactions with no transactional impediments (costs) of any kind, they would always agree to rearrange their respective obligations in a manner that would lead to a net increase in the productive value of their arrangement if such an increase were possible. 1 This would hold true irrespective of any rule of liability in effect at the time. 2 These insights were among the conclusions of Ronald H. Coase, a renowned University of Chicago economist, that he set out in his seminal 1960 article, The Problem of Social Cost. 3 The economic problem Coase analyzed centered on the topic of "negative externalities," or external costs of production that fall on society rather than on the producer. 4

Let's put this negative externalities phenomenon into a simple, hypothetical situation and show how the parties acting pursuant to the Coase Theorem might resolve the problem. Sam's neighbor, Carol, has a barking dog, Barkarama, that she loves dearly. She chooses to keep Barkarama because owning the pet gives her great pleasure. In other words, Barkarama produces a positive net social output to Carol over and above the cost and bother to her of owning and maintaining it. Because of the net increase in pleasure she derives from keeping Barkarama, Carol, in economics jargon, is said to have a preference for ...
If you are interested in obtaining a® ID and Password, please contact us at 1-(800)-227-4908 or visit us at
Search Documents
eg., Environmental Insurance Coverage Under the Comprehensive General Liability Policy

Lexis® Web - The only search engine that delivers free web content specifically from legal sites validated by LexisNexis® attorney editors and includes tools for faster research and more relevant results.

LexisNexis Store
Research Now - Go to
Connect the Dots - Free 1 hour webcast
Share. Network. Discover. - Go to LexisNexis Communities