Case study of Coase s theorem, life examples of Coase s theorem and explanations

Coase's theorem states that under certain conditions, economic externalities, or inefficiencies, can be corrected through negotiation between the parties, so as to maximize social benefits. Coase himself never put the theorem into words, and others could not avoid expression bias if they tried to put Coase's theorem into words. The more popular statements about Coase's theorem are:

As long as property rights are clear and transaction costs are zero or small, the end result of market equilibrium is efficient, achieving a Pareto optimal allocation of resources, regardless of who the property rights are given at the outset.

1. In the case of zero transaction costs, the negotiation between the parties will lead to a Pareto optimality of resource allocation, regardless of how the rights are initially allocated;

2. In the case that the transaction cost is not zero, different rights allocation definitions will bring different resource allocation;

3. Because of the existence of transaction costs, different rights definition and distribution will bring different benefits of resource allocation, so the setting of the property rights system is the basis for optimizing resource allocation (to achieve Pareto optimality).

Life examples and explanations of Coase's theorem:

Assuming that there are five households in the vicinity of a factory, the soot emitted from the factory's chimney costs each household $75 due to the contamination of residents' clothes drying outdoors, for a total loss of $375 for the five households.

There are three ways to solve this problem: one is to install a dust cover on the chimney of the factory for $150; Second, each household has a dust collector, the dust collector ** is 50 yuan, and the total cost is 250 US dollars; The third option is $75 per household. The compensator is either the factory or the household itself.

Suppose that the cost of reaching a certain agreement between 5 households, and between households and the factory, is zero, i.e., the transaction cost is zero, in this case:

If the law stipulates that the factory has the right to discharge pollutants (which is a property right), then households would choose to pay $30 per household to jointly purchase a dust cover to install on the factory's chimney, because this is the most economical way to pay 50 yuan per household for a dust collector or to consider a loss of $75.

If the law stipulates that residents have the right to clean (which is also a property right), then the factory Duanshu will also choose to pay $150 for a dust cover to install on the factory's chimney, because it is the most economical way to buy a dust cover than to pay $250 to equip each household with a dust collector, or to pay $375 to compensate each household for the loss of $75.

Therefore, when the transaction cost is zero, whether the law stipulates that the factory has the right to discharge, or the opposite stipulates that the household has the right to clean, the final cost of solving the $375 loss caused by soot contamination of clothing is the lowest, that is, $150, which is the most efficient.

The above examples show that when the transaction cost is zero, no matter how the property rights are stipulated, the efficiency of resource allocation can always be optimized. This is known as the "Coase theorem".

What is Coase's theorem, if it weren't for the bank exam, I would never have known for the rest of my life that there is a man named Coase in this world, and he still has a theorem!

Definition: As long as the property rights are clear and the transaction costs are zero or small, then the end result of the market equilibrium is efficient, achieving a Pareto optimality of resource allocation, regardless of who the property rights are given at the outset.

But Lao Xue saved me from the misery of economics!

Who is Lao Xue? chased a variety show "Wonderful Sayings", and was successfully fanned by economist Professor Xue Zhaofeng, so he bought a book of his economics, and in his book, many principles of economics were expressed with very simple and clear examples, and the original boring appearance of economics was completely shaken off!

After all, what exactly does Coase's theorem refer to? Xue Zhaofeng gave such an explanation, whoever uses it well will be the one who fights!

What do you mean, let me give you an example.

We all live in an era where a large amount of data is generated every day, for example, we read a book on a certain reader, and in the process of reading the book, we may activate a function, which is to collect, save, and take notes on the sentences that we think are important.

So the question is, who exactly does the data of the notes you make on the reader belong to?

You will definitely feel that this data must belong to us, because the book is bought by me on reading**, and the notes are written down by myself, and this data is of course our own!

But the reading platform will also say, you are reading on my platform, stored on our reading platform, of course the data belongs to our platform!

It seems that the public says that the public is reasonable, and the mother-in-law says that the mother-in-law is reasonable, so who does the data belong to? Reading platforms, of course.

The reason is the meaning of Coase's theorem: whoever uses it well belongs to whom?

This note you made is private for you, save it, and the value of Chun Jianxiang is so little, but these data if.

The reading platform collects it and makes statistics, and then sends it to every reader who buys a book on the reading platform, then it will generate great value.

Then when you buy a book to read on the reading platform, you can read the data sent to you by the platform, and directly see the key points of the book that are marked by others, which saves a lot of unnecessary reading time!

In this case, is it better for us to mark the ownership of the notes to the reading platform by default?

And when we use the reading platform, there must be a reading agreement at the beginning, the agreement is very long, we won't look at it at all, and at that time we have already given our rights to the reading platform, so when the reading platform obtains data, its transaction cost is almost zero!

Coase's theorem is the foundation of the study of property economics, and its core content is the assertion of transaction costs.

The basic meaning of Coase's theorem was expressed by Coase in his 1960 essay "The Problem of Social Cost", and the term "Coase's theorem" was first used by Georgestigler in 1966.

A more popular explanation of Coase's theorem is: "Under the condition that transaction costs are zero and property rights are fully defined and enforced, externalities do not lead to improper allocation of resources." In this case, the parties (producers and consumers of externalities) will be driven by a market to negotiate mutually beneficial transactions, that is, externalities are internalized.

It is also believed that Coase's theorem is made up of two theorems. Coase's first theorem is Stiegler's formulation: if the market transaction cost is zero, the market mechanism will automatically make the allocation of resources Pareto optimal, regardless of the initial arrangement of rights.

In the real world where transaction costs are greater than zero, Coase's second theorem can be formulated as follows: once the cost of market transactions is taken into account, the initial definition of legal rights and the choice of the form of economic organization will have an impact on the efficiency of resource allocation.

A living example of Coase's theorem is that coal burned on a train often spills sparks, igniting crops piled up next to the railway.

It can be seen that each party can take precautions to reduce the damage caused by fire. To illustrate this, farmers can stop planting and piling up crops along the tracks, and the railroad authorities can install fire-proof facilities or reduce the number of train trips.

At first glance, it seems that the law controls the incentive for all parties to take precautions, and as a result, the law determines the number of losses caused by fires. It is important to know that injunctions are the traditional means of preventing nuisance from occurring in property law.

Coase's theorem explained:

If the farmers had the right to direct the railroad until it did not splash the sparks, then the sparks would hardly cause any fire damage. Conversely, if the railway sector operates with impunity, then it can cause a lot of fire damage.

According to Cowan's theorem, these phenomena can lead people astray, because while the law provides for the initial distribution of rights, the market determines the final distribution. <>