Problem Of Social Cost Research Articles

Law & Economics at sixty: Mapping the field with bibliometric and machine learning tools

AbstractAs the year 2020 marks the 60th anniversary of the landmark paper in the Law & Economics (L&E) field by Ronald Coase—The Problem of Social Cost—we provide a systematic bibliometric analysis of the development of this field over the years. We look at the output and input side of knowledge production in the field of L&E. The former consists of the volume of production and thematic coverage of the field. The latter—input—looks at the producers of knowledge, the institutional and country affiliations of authors, and the intellectual structure of the field. Thus, the “who”, the “where” knowledge is produced as is also that of on “whose” shoulders the field stands. We demonstrate that Law & Economics shifted from more theory driven work to empirical and evidence‐based contributions. Likewise, we show that the Law & Economics field tends to be dominated by authors affiliated with economics departments, and crucially; however, more impactful research seems to be produced by inter‐disciplinary cooperation. The L&E field further resembles the economics domain in terms of co‐authorship patterns, number of citations and lengths of papers. Finally, we look at diversity in the field of L&E and show, for instance, that the share of female scholars has been steadily growing for the last two decades.

Climate change and the problem of social cost

This paper assesses the prospects for climate stabilization from both positive and normative economic perspectives, and with an eye to the conditions necessary for collective action across the three domains: domestic, international, and intergenerational. While it is well-established that international freeriding and transaction costs pose major impediments to successful environmental agreements, this analysis identifies the intergenerational domain as the source of intractability due to long delays between bearing the mitigation costs and enjoying their eventual climate benefits. This lag causes the net benefits for median-aged voters’ to be negative over their expected remaining lifespans. Drawing from several Integrated Assessment Models of the benefits and costs of climate stabilization actions, the analysis concludes that programs of domestic and international climate actions will be hopelessly stymied by the failure of the actions to pass individual and collective rationality tests. However, these dire findings leave the door open to the possibility that some other change in circumstances might undercut this conclusion. In particular, the assignment of rights has that potential. Indeed, these circumstances echo the canonical insights from Ron Coase’s observation in The Problem of Social Cost (1960) that the arrangement of rights can have large effects on welfare when transaction costs for an externality are high. Current climate rights amount to ade factoopen access right to pollute the atmosphere. Were a right to a stable climate for both for current and future generations recognized, added weight or leverage would add potency to support for climate stabilization policies and international agreements. These legal changes could represent a counterweight to offset the inadequacy of support from the current self-interested generation. Indeed, some recent climate litigation argues that many nations’ constitutions already encompass an affirmative right to a stable climate, a proposition that could represent a powerful means to break the climate impasse.

Ronald H. Coase, Friedrich A. Hayek, and the Institutional Structure of Production and Exchange

AbstractThe essay investigates the parallels and connections between Friedrich A. Hayek and Ronald H. Coase. It emphasizes the shared context at the London School of Economics (LSE) in the 1930s within which both authors reacted, in particular the role of the so-called LSE tradition on opportunity cost. We focus attention on the same pattern of institutional reaction to the formal similarity proposition of neoclassical general equilibrium theory exposed in both authors. In “The Nature of the Firm” (1937a), Coase’s pioneer transaction cost argument was decisively constructed and shaped by the controversy around the possibility of rational economic calculation under socialism. This debate was crucial to Hayek’s fundamental reformulation of neoclassical equilibrium analysis in terms of a social coordination problem in “Economics and Knowledge” (1937). In a parallel manner, although focused on the microstructure of production, Coase (1937a) was reacting to the standard general equilibrium theory and its postulates. Traditional microeconomic theory could not explain the decisions to make within the firm or to buy in the market, nor the many hybrid organizational arrangements that lie between the centralized firm and the decentralized market process. In “The Problem of Social Cost” (1960), Coase develops his argument advanced in 1937 to the welfare corollaries of the general equilibrium framework encapsulated in the first and second welfare theorems. In this case, the connection was made through the influential ideas of his long-LSE friend, Abba P. Lerner. Finally, the essay explores Hayek’s instrumental role in the intellectual and institutional foundations of the Law and Economics movement at the University of Chicago.

Coase and the problem of social cost

In the view of many, Coase (1960) overcame and supplanted Pigou (1932) in terms of the sophistication, and accuracy of the law and economic analysis of social cost. It is the task of the present paper to main that the same fate should befall Coase. We have through are paper tried to redefine the problem, showing in the process that the problem of social cost is the problem of violation of private property rights which in policy and judicial implementation becomes the problem of establishing the harm done, and holding the damaging party responsible for the violation.

The economist and the judge

In “The Problem of Social Cost” Ronald Coase tried above all to argue that economists could form a better judgment by drawing on the empirical methodology of judges. As this article aims to show, this reading is confirmed by Richard Posner’s shift over the years toward Coase’s approach. In 1993 Posner criticized Coase’s economic approach as being antitheoretical. Yet in Overcoming Law (1995), Posner defined his own legal pragmatism as an “antitheory.” It was only at the beginning of the 2010s that Posner explicitly and positively reappraised Coase’s economic approach. Posner’s shift toward Coase helps shed more light on the Coasian relationship between economists and judges. This relationship implied that economists should be inspired by judges and not the other way around, contrary to the belief held by Posner, who thought judges should adopt the economics that Coase criticized as too abstract.

Coasean idealization

ABSTRACT Idealizations help us understand the world by simplifying it. When factors make discrete contributions to an outcome, leaving factors out can make it easier to identify the contributions of factors that remain. But typically in economics, factors are not discrete but interact; how can isolating some factor X from some factor Y help us understand a reality in which X’s contribution depends on what Y contributes? I argue that Ronald Coase’s method in ‘The Problem of Social Cost’ illustrates how idealization can aid our understanding of a world in which factor Y (transaction costs) has an effect on factor X (transactions), by making plain precisely that effect, and so making it easier to see features of the actual world that obtain because of that effect. ‘Coasean’ idealization is therefore especially useful for understanding targets in which factors are not discrete but interact, as is so often the case in economics.

Of Coase, Cattle, and Crime: Why the Becker Model is Compatible with a Moral Theory of Criminal Law

Abstract The economic model of crime is often portrayed (and criticized) as being contrary to a moral theory of criminal law. This paper advances the opposing view that the two theories are in fact potentially compatible with one another. The basis for this claim is that, whereas the Becker (1968. Crime and punishment: an economic approach. J. Polit. Econ. 76: 169–217) model is useful in prescribing a theory of optimal enforcement of the law, it does not, and indeed cannot, provide a definitive prescription for its content. The reason is the reciprocal nature of harm in situations involving incompatible rights, a principle first identified by Coase (1960. The problem of social cost. J. Law Econ. 3: 1–44) in the general context of externalities. The paper develops this argument, offers a formal demonstration of it, and draws out some of its implications.

Mechanisms of Effective Governance and Cooperation: Comparative Analysis of the European States

The research performs an attempt to adapt accumulated approaches of the Institutional Economics to the application of the Coase theorem in public administration. Governance is mainly analyzed in the field of political science, while transactional costs definitely serve to the economic surveys. Solving the problem of social costs, Coase theorem revealed a conception of property rights as the outcome of mere contracting in independent exchanges. This conception is applicable for analyzing a wide range of issues, including externalities related to the use of assets and public goods. The article contains a brief characteristic of the self-governance in European states. The results of comparative analysis of the local governance in European region became a basis for proposing a series of transformation tools for Ukraine and neighboring states in this field. Obtained results of statistical modeling and payoff matrix of Nash equilibrium clearly confirm the validity of the Coase theorem for interpretation of the interaction between local self-governance and government institutions.

Competitive Harm from Vertical Mergers

The antitrust enforcement Agencies’ 2020 Vertical Merger Guidelines (VMGs) introduce a nontechnical application of bargaining theory into the competitive assessment of vertical acquisitions. This bargaining theory has much in common with the theory of unilateral effects that is applied to horizontal mergers. The VMGs focus on post-merger price increases requires consideration of a vertical merger’s role in eliminating double marginalization (EDM). The problem occurs when two bargaining firms both have market power but are unable to coordinate their output. Assessing EDM bundles two themes that Ronald Coase developed in his two most well-known articles: “The Nature of the Firm” and “The Problem of Social Cost”. The first argued that the boundaries of a firm are determined by the firm’s continuous search to minimize costs. The second argued that two traders in a well-functioning market will achieve the joint-maximizing solution. Anti-interventionists rely heavily on Coasean arguments that unless high transaction costs get in the way firms will bargain to joint maximizing results. If that is true, then double marginalization will rarely provide a defense to a vertical merger. The law of vertical mergers deals largely with firms that transact with one another routinely, in legally enforceable buy-sell relationships. In a well-functioning vertical market durable double marginalization should be rare.

TRANSACTION COSTS AND THEIR EFFECT ON THE SIZE OF THE ENTERPRISE AND THE STRUCTURE OF THE ECONOMY

The paper presents a discursive analysis of the use of the category of “transaction costs”. The similarity of the concepts of “transaction costs’ and “costs of the marketing” by E. Chamberlin is demonstrated. However, in the original discourse of R. Coase, transaction costs are considered as the costs of using the price mechanism associated with the market allocation of resources. The firm, as a hierarchical economic system, was an alternative allocation mechanism to the market. The factors that influence the value of transaction costs in O. Williamson’s contract theory are almost unrelated to sales and the marketing. In the discourse of J. Buchanan and M. Olson transaction costs are costs arising in the political market. For J. Buchanan, these are the “positive” costs of creating new laws that reduce the social costs associated with the production and distribution of public goods. M. Olson’s discourse addresses not only the “positive” but also the “negative” costs associated with dividing markets through government regulation. In turn, R. Coase himself, investigating the problem of social costs associated with external effects, in fact got rid of transaction costs, equating them to zero. It is this situation of “Coase’s theorem” that began to be used in the framework of the analysis methodology of the discipline “Economics and Law”. The paper proposes an interpretation of transaction costs as costs of overcoming the boundaries between heterogeneous systems, based on the discourse of E. de Soto. In this case, the prices of legality/illegality can be viewed as the transaction costs of using different economic systems.

At the Origins of Neo-institutionalism: Ronald Coase

The article contains the analysis of the views of the Nobel laureate in economics Ronald Coase (1910–2013) as the founder of neo-institutionalism. it provides a comparative description of the “old” and “new” institutionalism and shows the relationship and difference between neoclassicism and neo‑institutionalism. I analysed in detail the most famous articles of Coase and, first of all, “The Nature of the Firm” and “The Problem of Social Costs”. in these works, Coase showed that in the absence of transaction costs there is no economic novelty for the existence of a firm, in the second — that in the lack of transaction costs the legal system does not matter. With an exact specification of property rights, the market economy itself is able to cope with environmental pollution without resorting to government intervention, adjusting taxes and subsidies. The article shows the history of lighthouses in economic theory. Usually, the lighthouse is listed as a purely public good. Ronald Coase shows that even a public good — like lighthouses —was paid for by shipowners. The last part is devoted to essays on economics and economists.

The Coase Theorem at Sixty

The Coase theorem is one of the most influential and controversial ideas to emerge from post–World War II economics. This article examines the theorem’s origins, diffusion, and the wide variety of uses to which it has been put by economists and others over the sixty years since Coase published “The Problem of Social Cost.” Along the way, we explore the ambiguity and controversy surrounding the theorem, develop a Coase theorem that is valid as a proposition in economic logic, and probe the implications of all of this for the use of the Coase theorem going forward. (JEL D23)

AS VANTAGENS ECONÔMICAS E A MINIMIZAÇÃO DOS CUSTOS DE RESPONSABILIDADE E DE TRANSAÇÃO NA IMPLANTAÇÃO DE POLÍTICAS DE COMPLIANCE NAS EMPRESAS

Pretende-se, por intermédio deste estudo, analisar e avaliar as vantagens econômicas e a diminuição dos custos de transação na aplicação de políticas de compliance nas pessoas jurídicas de direito privado. A principal forma de análise será aquela proposta por Ronald Coase em seus artigos The Problem of Social Cost e The Nature of the Firm, entre outros consagrados autores da Escola de Chicago. Sinalar-se-ão as finalidades e os meios para a implantação dessa política nas empresas, bem como o lucro e o custo advindos dessa aplicação. Afinal, a aplicação das diretrizes formuladas pela Lei Anticorrupção Empresarial, sancionada pelo governo brasileiro, em 2013, por exemplo, é um incentivador de criação de políticas internas para que a firma, como um todo, aja de forma ética e além dos ditames da lei. Será proposta, também, a importância do compliance officer como um setor consultivo e que trará lucro às empresas se comparado com a litigiosidade dos eventuais processos judiciais aos quais as companhias podem sofrer. Conclui-se, com base em prescrições da AED, como o ótimo Kaldor-Hicks e a Fórmula de Hand, que os custos despendidos em compliance possuem um retorno marginal maior do que o custo.

Competitive Harm from Vertical Mergers

The 2020 Vertical Merger Guidelines produced by the antitrust enforcement agencies introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic. However, we have been there before. The introduction of concentration indexes in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again when unilateral effects theories of mergers were introduced in the 1990s. The bargaining theory that drives much of vertical merger analysis today has much in common with the theory of unilateral effects. In any event, the value of a particular model depends not on its verisimilitude but rather on its testability. The theory that relates a concentration index to the risk of competitive harm from horizontal mergers involves as much conjecture as does the bargaining theory that the Nash model for vertical mergers contemplates. The concentration thresholds in the Horizontal Merger Guidelines capture a rough generalization about a large number of collusive or oligopolistic strategies, some of which are not consistent with each other. What they share in common is belief in a link between the number of firms in a market, the increase in concentration that results from the merger, and the extent of higher prices. Double marginalization as a vertical merger defense occurs when two bargaining firms each have market power but are unable to coordinate their output. Each takes a markup without considering the other, and aggregate markups are too high. Both firms as well as their purchasers would be better off if they could coordinate better. In the AT&T/Time-Warner case the defendants argued that after the merger TW would not coordinate with AT&T but would set its prices as if the merger had not occurred. In that case the merger would not have eliminated double marginalization either. The debate over the elimination of double marginalization bundles two themes that Ronald Coase developed in his two most well-known articles, The Nature of the Firm and The Problem of Social Cost. The first argued that the boundaries of a firm are determined by the firm’s continuous search to procure inputs in the most cost effective way. The second argued that two traders in a well-functioning market will achieve the joint-maximizing solution. This dual relationship is too often ignored. Anti-interventionists rely heavily on Coasean arguments that unless high transaction costs get in the way firms will bargain to joint maximizing results. If that is true, then double marginalization will rarely provide a defense to a vertical merger. The law of vertical mergers deals largely with firms that transact with one another routinely, in legally enforceable buy-sell relationships. By contrast, the actors who appear in The Problem of Social Cost do not bargain with each other regularly. In a well functioning vertical market durable double marginalization should be rare.

The construction of patent claims

AbstractThis paper highlights two recurring facets of the way UK courts approach the construction of patent claims: the adoption of methods typically applied to the interpretation of contracts and the recognition that immaterial variations not expressly claimed nevertheless fall within the scope of protection. Drawing on the normative implications arising out of Ronald Coase's paper on the problem of social cost, this paper argues that the patent system operates as a substitute for an explicit bargain between economically active entities operating in the market under which a duty is accepted by one party in return for acceptance of a burden of risk by the other. This perspective incorporates both the static costs and the dynamic benefits of the system and accords with the monopoly-profit-incentive theory most commonly advanced in support of the patent system. It is shown how the contemporary approach to claims construction is supported by the object of giving effect to the presumed intentions of the parties to this hypothetical bargain and that this underpins both the implication of terms which go beyond those expressly agreed to by parties to a contract and the construction of patent claims so as to embrace immaterial variations not expressly within their scope.

The Social Cost of Contacts: Theory and Evidence for the COVID-19 Pandemic in Germany

Building on the epidemiological SIR model we present an economic model with heterogeneous individuals deriving utility from social contacts creating infection risks. Focusing on social distancing of individuals susceptible to an infection we theoretically analyze the gap between private and social cost of contacts. To quantify this gap, we calibrate the model using German survey data on social distancing and impure altruism from the beginning of the COVID-19 pandemic. We find that the optimal policy reduces contacts drastically in the beginning, to almost eradicate the epidemic, until a vaccine becomes tangible. All groups substantially reduce contacts, and differences between groups are only of secondary importance. Private protection efforts are sufficient to stabilize the epidemic in the laissez faire, though at a prevalence of infections much higher than optimal; impure altruistic behaviour closes around a third of the initial gap towards the social optimum. Overall, our analysis suggests that private actions for self-protection and for the protection of others contribute substantially towards alleviating the problem of social cost.

The Social Cost of Contacts: Theory and Evidence for the COVID-19 Pandemic in Germany

Building on the epidemiological SIR model we present an economic model with heterogeneous individuals deriving utility from social contacts creating infection risks. Focusing on social distancing of individuals susceptible to an infection we theoretically analyze the gap between private and social cost of contacts. To quantify this gap, we calibrate the model using German survey data on social distancing and impure altruism from the beginning of the COVID-19 pandemic. The optimal policy reduces contacts drastically in the beginning, to almost eradicate the epidemic, and keeps them at around a third of pre-pandemic levels with minor group-specific differences until a vaccine becomes tangible. Private protection efforts stabilize the epidemic in the laissez faire, though at a prevalence of infections much higher than optimal. Impure altruistic behaviour closes more than a quarter of the initial gap towards the social optimum. Our results suggests that private actions for self-protection and for the protection of others contribute substantially toward alleviating the problem of social cost.

Data Management Law for the 2020s: The Lost Origins and the New Needs

In the data analytics society, each individual’s disclosure of personal information imposes costs on others. This disclosure enables companies, deploying novel forms of data analytics, to infer new knowledge about other people and to use this knowledge to engage in potentially harmful activities. These harms go beyond privacy and include difficult to detect price discrimination, preference manipulation, and even social exclusion. Currently existing, individual-focused, data protection regimes leave law unable to account for these social costs or to manage them. This Article suggests a way out, by proposing to re-conceptualize the problem of social costs of data analytics through the new frame of “data management law.” It offers a critical comparison of the two existing models of data governance: the American “notice and choice” approach and the European “personal data protection” regime (currently expressed in the General Data Protection Regulation). Tracing their origin to a single report issued in 1973, the article demonstrates how they developed differently under the influence of different ideologies (market-centered liberalism, and human rights, respectively). It also shows how both ultimately failed at addressing the challenges outlined already forty-five years ago. To tackle these challenges, this Article argues for three normative shifts. First, it proposes to go beyond “privacy” and towards “social costs of data management” as the framework for conceptualizing and mitigating negative effects of corporations’ data usage. Second, it argues to go beyond the individual interests, to account for collective ones, and to replace contracts with regulation as the means of creating norms governing data management. Third, it argues that the nature of the decisions about these norms is political, and so political means, in place of technocratic solutions, need to be employed.

Does law and economics help decide cases?

Our answer is “less often than you might think.” We qualify and defend this answer in several steps. First, we offer some suggestive evidence that major scholarly contributions in law and economics have had relatively more influence with academics than with judges. For example, ranking articles on the basis of judicial citations rather than academic citations produces interesting results: Judges cite Ronald Coase’s “The Problem of Social Cost,” by far the most cited paper in the legal academy, much less frequently than doctrinal papers that have received relatively little attention from scholars. Second, we argue that some common features of law and economics scholarship are unappealing to judges. The broadest form of explanatory law and economics—like the hypothesis that the common law has tended to produce efficient rules—is often of little use to judges, who require reasons for making or justifying current decisions. Prescriptive law and economics, meanwhile—like various arguments that the legal system should produce efficient rules—often proceeds from ideological premises that judges don’t share, or fails to account for the institutional constraints under which judges operate. In short, much law and economics scholarship is insufficiently doctrinal to appeal to the average judge. These features of law and economics scholarship don’t prevent judges from using economics all the time. After all, economics is a basic social science, and judges encounter economic questions with some regularity. But, even here, we find little evidence that today’s judges are making greater use of concepts like “efficiency” and “incentives” than those of the past. Throughout this essay, we comment on Guido Calabresi’s “The Future of Law and Economics” (2016) and Richard Posner’s “Divergent Paths: The Academy and the Judiciary” (2016).

The Organizational Logic of Technology: An Analysis of the Transformation of the Agricultural Economy in County B, 1986–2016

Based on field investigation in County B of Shanxi Province, this paper explores the relationship between technology and organization by examining the complex interactions between the government (technology supplier) and the differentiated agricultural managers (technology recipients) and the subsequent transformation of the agricultural economy. Past studies have argued that government intervention can significantly improve economic management, and the government-led, highly organized model of agricultural technology promotion can effectively solve the problem of social cost in technology application by rural households. However, when technology promotion driven by political mobilization is over, the application of new technologies by rural households encounters difficulties because of the growing capitalization of technological factors on the one hand and the households’ limited capital accumulation and consumption structure on the other. The government, for its own part, also redirects its technological services to the more capitalized, large-scale managements, which are considered to be able to accelerate the application of new technologies and the realization of the government’s economic objectives. Nevertheless, the importance of rural households should never be ignored in the government’s economic planning. It is possible that, with the support of the government, large-scale agricultural managements can integrate rural households into their growth model that combines production with marketing by outsourcing technological service. This will bring about profound changes in the local agricultural technology promotion system and accelerate the transformation of the agricultural management system.