Theorems Related Tothe Theorem of CoaseECONOMIC ANALYSIS OF LAWLecture 3 - Economic Theory of PropertySegment 1–The Theorems Related to the Theorem ofCoase

•Property rights•Recognized in land, personal property, intellectual property•Not recognized in people (slaves), body parts, human embryos•pp. 161 - 163•What about DNA?, sperm, eggs?Segment 1–The Theorems Related to the Theorem ofCoase

•Coase Theorem•The more formal statement of the Theorem of Coase waspresented by Professor Cooter:•When transaction costs are zero (0), an efficient (sociallyoptimal) use of resources results from private bargaining,regardless of the legal assignment of property rights.Cooter& Ulen (6thed.)–p. 85Segment 1–The Theorems Related to the Theorem ofCoase

Electric Co. and LaundryBargain–Coase TheoremVery Low or 0Transaction CostsSegment 1–The Theorems Related to the Theorem ofCoase

•Converse to Coase Theorem•The converse of the Theorem of Coase is also presented byProfessor Cooter:•When transaction costs are high enough to preventbargaining, the efficient use of resources will depend on howproperty rights are assigned.Cooter& Ulen (6thed.)–p. 85Segment 1–The Theorems Related to the Theorem ofCoase

•Converse to Coase Theorem•Transaction costs represent a direct reductionof social surplus regardless of which partypays them•An inefficient technology (railroad sparkarrestors, fences) may be more Pareto optimalif transaction costs are high enoughSegment 1–The Theorems Related to the Theorem ofCoase

Electric Co. and LaundryBargain–Coase TheoremNo BargainVery Low or 0Transaction CostsVery High orInsurmountableTransaction CostsCannot RemoveTransaction CostsSegment 1–The Theorems Related to the Theorem ofCoase

•NormativeCoase Theorem•Structure the law so as to remove the obstacles to privateagreements.Cooter& Ulen (6thed.)–pp. 92-93Segment 1–The Theorems Related to the Theorem ofCoase

Bargain–Coase TheoremNo BargainNormative Coase TheoremVery Low or 0Transaction CostsVery High orInsurmountableTransaction CostsRemoveTransaction CostsElectric Co. and LaundrySegment 1–The Theorems Related to the Theorem ofCoase

•Normative Hobbes Theorem•Structure the law so as to minimize the harm caused byfailures in private agreements.Cooter& Ulen (6thed.)–p. 92Segment 1–The Theorems Related to the Theorem ofCoase

ECONOMIC ANALYSIS OF LAWLecture 3 - Economic Theory of PropertySegment 2–Theorem of Coase–Variant Version

Segment 2–Theorem of Coase–Variant Version

Demand for GrainSupply of GrainGrainDemand for BeefSupply of BeefBeefVariant Version of the Theorem of CoaseRedistribution of Surplus from consumers of beef toconsumers of grain causes:demand for grain to increasedemand for beef to decreaseSegment 2–Theorem of Coase–Variant Version

ECONOMIC ANALYSIS OF LAWLecture 3 - Economic Theory of PropertySegment 3–Injunctions and Compensation Revisited

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