The relationship between planning and the market from the perspective of property rights theory: A transaction cost analysis

Abstract

Current social and economic theory has yet to explain why, despite the many advantages of the market mechanism, planning is employed at all levels of market economy. Like other studies, this research proposes an explanation based on the form of property rights; however, it uses specific definitions of market, private planning and collective planning that establish unambiguous links between them and the structure of ownership. Thus, the article supports the position that the employment of planning or market mechanisms in economic and social activities depends solely on the structure of property rights. The contribution of this article is the formulation of two criteria for the allocation of property rights derived from Coase’s seminal works, termed in this text as Coase’s criterion of institutional optimisation and Coase’s market cost criterion. An important aspect of this proposal is the suggestion that Coase’s theory can be a powerful tool with which to study shared/common entitlements. It illuminates the nature and the mechanisms of private and collective planning and their relationship to the market. The article concludes that private planning may exist only if it is good enough to improve the efficiency of the market. Collective planning is indispensable when markets employ shared/collectively owned resources.