The Coase theorem holds that when property rights are well defined and bargaining costs are sufficiently low, private parties can negotiate their way to an economically efficient outcome in the presence of externalities, regardless of which party initially holds the legal entitlement. Formulated in the work of the economist Ronald Coase, the theorem implies that the assignment of property rights affects who bears the cost of an externality but not, under those idealized conditions, whether an efficient allocation of resources is ultimately reached.
Facts
Statementif the provision of a good or service results in an externality and trade in that good or service is possible, then bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property 1 Classification
Statement FormCharacterization Theorem 1 Connections
In the Other Atlases
Credited To
Also in Economics Atlas: credited with this subject.
Sources
1. Coase theorem - Wikipedia
Introduction
if the provision of a good or service results in an externality and trade in that good or service is possible, then bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property
In Group: Economic Theory, Lead paragraph
The Coase theorem () postulates the economic efficiency of an economic allocation or outcome in the presence of externalities.
View the SourceReader Challenges (0)
No disputes yet. Spotted an error or a better source? Open the first one.
Sign in to dispute this or suggest a correction.