The Fourth Coase Theorem: State planning rules and spontaneity in action

Abstract

This article elucidates a novel and powerful Fourth Coase Theorem using Coase’s own reasoning and extending the First Coase Theorem. It holds that state rules, which include, but are not limited to, property rights, can enlarge a market. This theorem lends support to state planning insofar as it establishes rules that enable and promote market transactions and illuminates the operation of the market’s spontaneity, subject to constraints. Seven conditions that demarcate the state’s role under this theorem from interventionist planning by edict are specified and illustrated by three well-researched real-life examples, one revealed by Coase and two others involving rights conferred by the state by licensing and zoning for maritime resources and by franchising for ordering land-use transport.