Law and Power in a World with No Transaction Costs: An Essay on the Legitimating Function of the Coasian Narrative

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This paper discusses the possible legitimating function (understood as the ability to provide an appropriate framework for the development of rational arguments supporting legal principles and rules) of the Coasian narrative. I argue that the Coasian narrative is inadequate to provide rational legitimacy to the theoretical roots of the economic analysis of law movement. The argument starts with the distinction between transaction costs that could be eliminated even if at times their elimination would be impossible or too expensive (social transaction costs) and transaction costs that could disappear only in a world ruled by physical laws different from the laws that govern the real world (natural transaction costs). The thesis presented in this paper is that a Coasian world of a kind (defined as a world - conceivable without breaking the physical and psychological laws that govern our real world - in which social transaction costs are absent, but natural transaction costs are present) is not a place worth living in. In order for us to imagine a world devoid of the defects of a Coasian world, we should imagine a divine kind of world, populated by God-like creatures and not by human beings. A world that everyone can model at his/her own pleasure, and that can provide rational legitimacy to nothing. This paper goes on to argue that the Coasian narrative ignores the dispositional nature of legal power and hides the distinction between influence and power. If these theoretical limits are appropriately removed, the centrality of the notion of transaction costs loses legitimacy and appears subordinate with regard to the primary goal of limiting the power that certain private individuals can exert over others.