A case of mistaken identity: George Stigler, “The Problem of Social Cost,” and the Coase theorem

Abstract

“The Problem of Social Cost” is rightly credited with helping to launch the economic analysis of law. George Stigler plays a central role in the professional reception of Coase’s work and, in particular, of the idea that came to be known as the Coase theorem. While Coase’s negotiation result was taken up in the scholarly literature not long after the publication of “The Problem of Social Cost,” it was Stigler who gave the theorem its name and introduced it to scores of readers in The Theory of Price (1966). His remaking of Coase’s idea into a “theorem” had significant rhetorical force, which, combined with the challenge that it pose to received thinking about externality problems, both lent credibility to the idea and made it a force to be reckoned with. The present paper analyzes Stigler’s various commentaries on the Coase theorem with a view to getting at both how Stigler understood the theorem and its import and why he exhibited such a fascination with it over the last 30 years of his life.