Talk:Coase theorem

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Contents 1 Earlier comments 1.1 Nobel prize 2 Images 3 Clarification regarding criticism 4 sigh 5 Is there an actual theorem? Expert advice needed.

[edit] Earlier comments

I removed "(although no definite mathematical version of it has ever been stated or proved)" because that's mistaken. I added a link to a proof of a version just as a nice example on the web, but this is hardly the only example. Jimbo Wales 23:58, 21 Nov 2004 (UTC)

[edit] Nobel prize

I corrected the mention of Coase winning a Nobel prize to the Bank of Sweden Prize in Economic Sciences. There is no such thing as a "Nobel prize in Economics". While the Bank of Sweden prize is awarded "in memory of Alfred Nobel", it is entirely unconnected with the Nobel Foundation, and the use of Nobel's name has been opposed by the foundation since the creation of the Bank of Sweden prize. Corvus 18:11, 27 Feb 2005 (UTC)

[edit] Images

I created some images. You can find them in the german version of this text. You may want to translate them. Stern 01:04, 3 Mar 2005 (UTC)

[edit] Clarification regarding criticism

The part about "Other major theoretical arguments ..." is alternately unclear and false. That different actors have different valuations of property does not undermine the Coase theorem -- it's the whole point. It's also, in fact, the whole point of trade -- if everyone had the same value of everything, we would all be islands. The rest of the sentence is an argument against the "Strong form Invariance Hypothesis," which is valid but irrelevant. When the theorem says that initial allocation of property rights "does not matter," it doesn't mean "does not affect the outcome." If means "will lead to some outcome that will be efficient. Income & wealth effects may change who has the highest willingness to pay, but it doesn't change the fact that post hoc, it goes to the highest valued use.

Also, the "three factors inhibiting efficient allocation" are duplicative -- #1 and #3 are types of transactions costs.

I, too, was about to write about the fact that #1 and #3 are transaction costs. I'll go and correct it now. --Tmh 13:03, 12 July 2006 (UTC)

In effect, this chapter:

Other major theoretical arguments against the theorem propose that in some situations different actors may have irreconcilable different valuations of property because of unique ability to use and that in some asymmetrical exchanges one party may be unable to procure sufficient capital because of the risk-aversion of financial institutions.

Simply tries to refute Coase's theorem with a normative distributive argument, which is pretty much the oldest, most simple misunderstanding. Naturally with Coase's theorem, as with any other economic transaction, we have a wealth effect. If you can't afford a car, you won't buy a car. If you can't afford to buy your neighbours to shut up during the night, you won't buy silence. The fact that property rights allocations have a distributive effect as well as the allocative effect doesn't change the fact. We can, of course, continue the discussion on the point of whether it's smart to misallocate property rights to inefficient uses for distributive purposes, but I think it's a bit far-fetched to place this discussion on a page discussion Coase theorem. --Tmh 13:24, 12 July 2006 (UTC)

One more thing: I am inclined to remove the "a critical view" link, since it doesn't provide any positive, commonly accepted criticism of the theorem. Instead it seems to wander around on normative criticism of policy advice it supposes is implied by coasean externality analysis. Of course, no such policy advice is implied; the theorem is a positive scientific theorem, not a hodgepodge that mixes the normative and the positive in a textbook example of a moralistic fallacy. --Tmh 14:39, 12 July 2006 (UTC)

[edit] sigh

the broad conclusion of the coase theorem is that free market actors are more efficient than central planners (this is why it is controversial at third rate schools that claim to teach "economics" but in reality are just shills for modern day centralists and despots [eg. paul krugman])

judging from the poor explanation in this article and the focus on criticism i assume the author(s) learned about the theorem at a third or second rate econ school

[edit] Is there an actual theorem? Expert advice needed.

The term "Coase Theorem" is very common. However, I am not aware of any proof of a proposition resembling the version stated in the article (which is a common formulation in my experience). Coase does not even attempt to offer a proof of any theorem in "The Problem of Social Cost," and as far as I know nobody has proven any proposition corresponding to the statement in the article. If I'm right, the article should make it clear that the Coase Theorem is not an actual mathematical theorem. If not (that is, if it has been proven), then the article should state who proved it and link to the paper if it's available. Can somebody who knows more about mathematical economics enlighten us? Elliotreed 22:17, 17 January 2007 (UTC)

The Coase theorem is not a theorem in the formal mathematical sense that is described in links you have offered. A search for the exact phrase on google scholar returns more than 5000 hits. A search through JSTOR at my university (51 economics journals) returns 752 hits. Including 41 law journals increase the hits to 1283. Searching across all disciplines returns more than 1900 hits. While I can not say whether someone has proved or disproved any of the propositions in Coase's article, there seem to be lots of scholars using the idea, some of whom I imagine are seeking to prove or disprove the validity of the article's salient points.

I would not want to see a disclaimer placed in the article. My concern rests on the fear that a lay person would interpret the disclaimer in a way that would diminish the importance of the ideas discussed. Unlike a description of critics positions on the importance of the CT, which might diminish the relevance of the CT in the eyes of a lay person, the source of that diminishment at least internal to the discipline

Along similar lines one might advance the issue of terms like the "Law of Supply and Demand". In what sense is an economist's use of the term "Law" similar or different than the concept of "Law" as used in natural sciences, or legal philosophy, etc. (see for example Law (disambiguation)) Each discipline will from time to time adopt terminology that is similar to other disciplines, and over time their use and meaning to members of each discipline will grow farther apart. This, it seems to me, is the natural course of things and so I would suggest not making the addition. If there is sufficient need for clarification, or harm caused by those that are seeking mathematical theorems, then perhaps a disambiguation page could be set up?

I am an economist, though not a mathematical economist. Your question, in my mind, is not one answered best by a mathematical economist, but perhaps by a person familar with the history of science or philosphy of science. Cheers, Joel Kincaid 16:17, 23 January 2007 (UTC)

I have to strongly disagree, here. Our job is not to shade the truth so as not to confuse weak minds. Coase gave a verbal argument, not a theorem. There are various theorems that have been labelled Coase's theorem since then. Whether or not they exactly capture the idea is up for debate.

By the way, I have never seen a textbook give a lighthouse as an example of a public good. I'm sure that they did before Coase's article (Coase specifically sites Samuelson, I think), but the practice has seemed to have died out. A clearer example of a public good would of course be Wikipedia. -- Walt Pohl 02:45, 29 January 2007 (UTC)