Abstract
Coase's zero transaction cost assumption is not the most basic meaning of Coasean economics. For Coase, the law is essential to understanding the economic system and thus society's wealth. Coase claimed that legal delimitation of property rights leads to the maximization of social value, either through market transactions or through direct conferral of rights. To sustain such market transactions, the stability of the law is needed. A cost-benefit case-by-case approach would not suffice. The law's system of norms, including such concepts as binding precedent, is indispensable. These legal norms are not arbitrary when and just because they take economic consequences into account. For example, Coase's theory of the firm teaches that property rights should be assigned to the highest value user because institutional competition constrains the courts, the government, and the legislature.
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