Coase Research Articles

Emotional bargaining after litigation: An experimental study of the Coase theorem

AbstractEntitlement assignment is unimportant if transaction cost is sufficiently low, as post‐litigation bargaining can redress allocative inefficiency, or so goes the Coase theorem. Ward Farnsworth, based on interviews with lawyers, argues that animosity created during litigation, a key mechanism to (re)allocate entitlement, will hinder the conclusion of any deal following litigation. Using a laboratory experiment, we test whether animosity generated before negotiations reduce the rate at which deals are successfully concluded and find evidence for a lower deal rate under one of the treatment conditions (the raw difference being three percentage points). The small practical effect may be attributed to rationality carrying the day and/or the limited degree of animosity we can generated in the lab with human subjects. The Coase theorem holds, while Farsworth's observation should not be ignored.

Enhancing efficiency through negotiation and minimizing transaction costs: application of Coase theorem to corporate insolvency

Enhancing efficiency through negotiation and minimizing transaction costs: application of Coase theorem to corporate insolvency

Luck in high-stakes firm lottery allocation: A natural experimental test of Coasean efficiency and invariance in a prominent sport finance setting

The NBA Player-Draft is a prominent sport-finance setting, with large rents allocated to teams. Several properties make this setting ideal to study the Coase Theorem in a cartelized-firm setting, where the Theorem’s empirical credence and overall relevance to real-world financial settings continue to be questioned. Identification of a high-stakes, salient setting featuring exogenously-assigned property rights has proven elusive. While several studies examine the Coasean implications of professional sports league drafts, we find draft rights are endogenously-assigned. We cultivate, verify, specify, and examine an exogenously-assigned draft right—draft lottery luck—for the 2000–2015 NBA Drafts. Given its revealed exogeneity, we utilize variation in annual lottery luck as a natural experiment to study the Coase Theorem and find robust evidence for “instantaneous” Coasean efficiency (as in efficiency of the efficient market hypothesis) but also evidence that Coasean invariance, with respect to firm profits, fails. Secondary analysis reveals respective mechanisms and sport-financial implications.

Economic instruments for reducing the use of plastic bags in the state of Pará, Brazil

The state of Pará has prohibied the sale and distribution of conventional plastic bags to mitigate their socio-environmental impact. This article aims to suggest economic incentives to assist State Law 8902/2019 in diminishing plastic bag consumption. This study employed the SWOT Matrix analysis to develop two economic instruments based on the externality precepts defined by Arthur Pigou and Ronald Coase. The initial proposal, derived from Pigou, involved of a “tax exemption for plastic recycling enterprises”, whereas the subsequente proposal, based on Coase, stipulated “offering discounts to customers who refrain from utilising plastic bags”. Both instruments demonstrated potential for yielding favorable outcomes when integrated with Law 8902/2019; nevertheless, their efficacy relies on an effective selective collecting system and the advancement of environmental education.

Mandatory Notice of Layoff, Job Search, and Efficiency

Abstract In all OECD countries, mandatory notice (MN) policies require firms to inform workers in advance of a layoff. In our theoretical framework, MN helps workers avoid unemployment and find better jobs by encouraging them to search for a new job while still employed, thereby increasing future production. The magnitude of this production gain depends on the relative effectiveness of search while employed versus unemployed. But on-the-job search and diminished work incentives reduce current production. If future gains outweigh current production losses, longer advance notice improves production efficiency. If not, Coasian bargaining predicts that firms offer a larger severance instead of longer notice. With bargaining, the sole efficiency loss of MN is due to delayed separations of unproductive job matches. We test these predictions using novel Swedish administrative data on layoff notifications. Workers eligible for extended MN receive longer notice and larger severance, resulting in less exposure to nonemployment spells and higher-paying jobs. These favorable labor market outcomes are solely due to longer notice; in contrast, larger severance delays job finding and has no impact on wages. We also show that advance notice replaces job search while unemployed with more effective search while employed. On the production side, we document a productivity drop among notified workers and estimate a production loss due to delayed separations. Using our estimates of production gains and losses to evaluate the overall production efficiency, we conclude that the gains of MN seem to outweigh the losses.

An economic rationale for the different methods of feeding enslaved people in the antebellum South and British West Indies

This article focuses on two different systems of feeding enslaved people. In the first system, primarily associated with the cotton, tobacco, and rice plantations of antebellum South and the early sugar plantations of the British West Indies, the obligation to feed enslaved people was executed by the plantation. In contrast, under a second system known as provisioning associated with the later British West Indian colonies, the master allocated land to enslaved people on which they would grow their own food. Over time, this land was understood, in the wider community of both those enslaved and the planters, to be the “property” of the enslaved person. This article offers potential explanations both for why provisioning was adopted in the West Indies, and why provisioning did not take hold in southern U.S. plantations. Following Ronald Coase’s Nature of the Firm, we should expect to see provisioning when doing so economizes on transaction and agency costs. As it became more difficult to purchase imported food, plantations had to provide their own food. Provisioning sacrificed the plantations’ claims to surplus food, but in the West Indies such decentralized production could enhance incentives for enslaved people to produce their own food while economizing on the need for supervision.

The effect of the initial distribution of labor-related property rights on the allocative efficiency of labor markets

IntroductionThe Coase Theorem posits that frictionless markets efficiently allocate scarce resources as long as property rights are fully specified. Our empirical study investigates how the initial allocation of labor-related property rights influences the allocative efficiency in labor markets for skilled workers within a highly competitive environment—professional basketball. Specifically, we compare two regimes: one where employers can trade workers to other employers without the worker's consent, and another where workers are free agents, able to negotiate and move freely without their employer's consent.MethodsWe utilize the NBA as a “laboratory” to conduct our analysis, constructing a unique panel dataset that includes 3,132 player-season observations spanning 17 regular seasons from 2003/04 to 2019/20. To address our research question, we employ linear panel regression models to analyze the data.Results and discussionThe findings reveal a decline in productivity among workers who transition to new employers as free agents, a phenomenon not observed among non-free agents. This observation suggests that allocative efficiency might be higher when workers are traded without their consent compared to when they exercise their autonomy as free agents. These findings highlight the significant impact that the initial distribution of labor-related property rights has on labor market efficiency, potentially challenging the assumptions of the Coase Theorem. However, the lack of a statistically significant difference in productivity changes between free agents and non-free agents moving to new employers prevents us from definitively rejecting the predictions of the Coase Theorem.

Do Parties Negotiate After Trespass Litigation?An Empirical Study of Coasean Bargaining

The allocative efficiency outcome predicted by the Coase theorem critically depends on the assumption that, barring high transaction costs, parties will bargain after litigation and misallocated entitlements by courts will be re-allocated through voluntary exchanges. Ward Farnsworth’s 1999 small-scale survey lent credence to the claim that parties do not bargain after litigation because of the endowment effect and the animosity created by litigation. Farnsworth’s sample is small and statistically biased. Yet no other article has tested whether parties in the real world would systematically fail to exchange for behavioral reasons. This paper combines seven different data sources to shed light on this issue. We survey 1511 practicing attorneys, who reported that a substantial minority of their clients settled with the other litigating party after courts had rendered decisions. We also examine over 300 hand-coded Taiwanese cases in which the landowner sued the illicit possessor for building a structure on the plaintiff’s property. Real estate transaction records of the land in dispute show that in 6% of the cases, the landowner registered a sale of property to the possessor after the litigation. Evidence from Google Street View and satellite pictures taken by the Taiwan government suggests that the exchange rate is higher than 6%. Logistic regressions suggest that post-litigation bargaining dynamics are at least partly rational — allocative efficiency and transaction costs (conventionally defined) still matter. To the extent that the pro se status proxies for animosity incurred during litigation, Farnsworth’s thesis is also supported.

Economists' Strong Advocacy for a Carbon Tax May Be Misguided

Many if not most economists, both conservative and liberal, support a carbon tax.1 As economist Alan Blinder recently remarked, “It's only a very slight exaggeration to say that all economists favor a carbon tax to mitigate climate change.” As this author discusses in this article, their position seems to overlook real‐world politics, bureaucratic incentives, and the “pretense of knowledge.”2 Advocates of a carbon tax seem to fall victim to what Nobel Laureate Ronald Coase labeled “blackboard economics”.3

The Role and Contribution of The New Institutional Economics In Economic System Performance

This study investigates new institutions' contributions and economic implications in current economic developments. This study uses a qualitative approach with a literature study method. The study illustrates key thought concepts and relevant works from figures such as Douglass North, Elinor Ostrom, Oliver Williamson, Ronald Coase, and Avner Greif through analysis of various reference sources, including books, journal articles, and other related publications. The results of the literature study show that New Institutional Economics has an essential contribution to understanding the role of formal and informal institutions in shaping economic behavior and Performance. Legal institutions, such as laws, regulations, and public policies, provide the framework for economic interactions, literature study results whereas informal institutions, such as norms, beliefs, and social networks, influence individual economic decisions. The importance of institutions and organizations in improving economic efficiency and overcoming problems arising in the economic system is also highlighted in this study. In the context of New Institutional Economics, institutions and organizations act as mechanisms for reducing transaction costs, resolving conflicts, and increasing trust and cooperation among economic actors. Its theoretical implications strengthen an understanding of how institutions and organizations can shape economic behavior and Performance. In contrast, its practical implications can provide direction for more relevant and effective public policies addressing economic and social problems.

Street animals and One Health: Opportunities as a response to Cosean solutions

The Coase Theorem emphasizes negotiation and voluntary interactions between the involved parties (government and society) in the face of externalities. It suggests that, under certain conditions, parties can reach an agreement leading to an efficient allocation of resources, regardless of who holds the property rights or, in this case, the responsibility. Thus, the main objective of this study is to investigate and present Coasean solutions as an effective response to addressing the issue of stray animals, promoting the health and well-being of these animals in an integrated manner with public health and the environment. To achieve this goal, this research adopted a qualitative, documentary, and bibliographic methodology, combined with the analysis of DataSus data along with a literature review on One Health, Coasean solutions, and approaches to the stray animal problems. The results demonstrated that the opportunities for Coasean responses are vast and promising. However, collaboration among the government, the population, businesses, and NGOs is the key to a sustainable resolution of the negative externalities generated by stray animals. By understanding One Health as an integrated approach, we can not only improve the quality of life for these animals but also promote public health, mitigate environmental impacts, and build a more aware and compassionate society.

Analysis of Ronald Coase's theorem from the perspective of natural resources management

The aim of this article is to consider why the Coase theorem is used so rarely in the field of environmental protection policy and why possible proposals for the implementation of this solution are exposed to harsh criticism. Ronald Coase points out the significant problem of regulatory costs, and his proposal for negotiations may be a panacea for certain over-administration, excessive interventionism, regulatory rigidity or lack of trust in the market mechanism. However, according to the author of this paper, the implementation of the Coase theorem in the most typical and significant areas and problems of environmental policy is either not possible, will encounter enormous difficulties, or is questionable from the point of view of natural resources and social welfare. The reasons for the limitations will be discussed, including undefined or imprecisely defined ownership rights to many environmental resources, the non-market nature of many environmental goods depriving them of a market price, and above all, the chronic asymmetry of the parties that would negotiate with each other on an equal basis.

A Digital Platform Strategy to Improve Food Waste Disposal Practices: Exploring the Case of "Too Good To Go"

This conceptual article delves into the intricate dynamics of global food security and the paradox of food waste, with a focus on Europe and Italy. Specifically, we examine the transformative potential of digital platforms, with a spotlight on the Too Good To Go platform, in tackling the challenge of redistributing food surpluses. In conventional market settings, the intricacies of food waste often go unnoticed by buyers and sellers, resulting in an inefficient equilibrium quantity determined solely by supply and demand forces. This failure to achieve an optimal outcome leads to a missed opportunity to maximize social benefit. Taking a microeconomic perspective, we highlight the platform's capacity to mitigate the adverse environmental and social impacts associated with food waste. Our findings illustrate how a market-based platform can address the inefficiencies and shortcomings of the Coase Theorem within the realm of food waste. By facilitating negotiation, reducing information asymmetries, and addressing environmental costs, the platform exemplifies how innovative market solutions can foster efficiency and sustainability.

Applying the Coase theorem to optimize levels of environmental investment screening

The current paper applies the Coase theorem (Coase, 1960) to environmental investment screening. The Coase theorem is a legal and economic theory focused on explaining how parties when facing a situation involving externalities can reach economic efficiency without government intervention. Through secondary research, the paper examines practices in environmental investment screening, trends in the costs of screening, and trends in the costs of pollution. My findings are in four folds: (1) environmental screening incurs cost, (2) exclusion of environmental screening incurs costs, (3) environmental screening costs are declining, and (4) the cost per unit of pollution is increasing. Applying these findings to the Coase theorem, we conceptually identify an equilibrium point for the optimal level of environmental screening. I further show that the equilibrium point is shifting towards a higher level of environmental screening. The paper thus provides an efficiency-based argument for higher levels of environmental investment screening.

Post-institutionalism versus economic science: Critical analysis

The article analyzes post­institutionalism, highlighting its inability to present a “new mainstream” in institutional studies in economics. Pointing out some real problems of institutional studies of modern society, post­institutionalism does not provide what economic theory needs. The rejection of functionalism, rationalism and efficiency and optimality criteria sidetracks this approach to the field of sociology and cultural studies; de­economization is also effected on account of target substitution of institution transplanting. Another essential problem is the confusion of notions through their “unsealing” that enables an “alternate” interpretation of blockchain and allows to oppose against the transaction costs minimization principle, basing on the criticisms of the Coase Theorem. Rejecting this interpretation, the article claims that the studies of the institutional complexity of modern society does not require refusal of classical approaches, but their clarification. The paper also criticizes the call for “postdisciplinarity” and raises the question of the quality of interdisciplinary institution researches.

Advancing ocean ecosystem conservation via property rights, rather than marine protected areas (MPAs)

There is demand to protect at-risk fish species and ecosystems. Property rights regimes can be superior to spatial controls via Marine Protected Areas (MPAs) for doing so. Empirical cases from Australia and the US indicate that MPAs are inequitable, too large and restrictive, and controversial. These conditions lead to resistance and political pushback, threatening long-term budgets and conservation goals. A critique of MPAs is presented along with a range of property rights arrangements–common, community, private—and Coasean bargaining as alternatives. Outlined benefits are a.) Rights holders have a stake in conservation and are central in its design. They are more than respondents. b). Costs/benefits can be more equally distributed, including direct payments that include both costs of transition and contribution to public goods provision. c.) Spatial set-asides confront tradeoffs and hence, are more apt to be economically sited and designed. d.) Modifications can occur more smoothly through market exchange than through the political process. Durable global conservation efforts can be enhanced.

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.

Partnerships based on Joint Ownership

In a unifying framework generalizing established theories we characterize under which conditions Joint Ownership of assets creates the best cooperation incentives in a partnership. We endogenise renegotiation costs and assume that they weakly increase with additional assets. A salient sufficient condition for optimal cooperation incentives among patient partners is if Joint Ownership is a Strict Coasian Institution for which transaction costs impede an efficient asset reallocation after a breakdown. In contrast to Halonen (2002) the logic behind our results is that Joint Ownership maximizes the value of the relationship and the costs of renegotiating ownership after a broken relationship.

Endowment Effect: Impact Factors and Influencing Mechanism

As a theoretical branch of behavioral economics, the endowment effect (EE) reflects the research method of behavioral economics, challenges the assumption that people are rational in traditional economics, and complements the deficiency of the Coase theorem by emphasizing that the phenomenon that people overvalue an item after owning, then it will affect the transaction of the item. In this paper, the author introduces the basic theories about the EE, analyzes the driving factors of the EE, and introduces the latest research findings on the basis of the loss aversion (LA) theory, providing readers with a new way to understand the EE. At the same time, as a link impressionable to the EE in the transaction, the author also analyzes and compares the research results of previous researchers on the influence of EE on the negotiation process, analyzes the reasons why the negotiation participants should avoid or reduce the influence of EE in the negotiation to achieve the goal of negotiation, and puts forward suggestions for the negotiators.

Reciprocity principle and private property rights in land: Coasean world is neither neoclassical nor capitalist

The “Coase theorem” states that in a zero-transaction cost neoclassical world society’s wealth is not affected by the allocation of liabilities rules. The “theorem” rests upon two fundamental premises: the first concerns Coase’s view of mutual causation of harm, namely the reciprocity principle, and the second refers to his understanding of private property as a bundle of use rights. However, when these two premises are specifically applied in cases of trespass to land, not only portray a blur picture of private property, but they also contradict the very nature of rights over property. Specifically, I am arguing that these two premises undermine the centrality of exclusion rights to the institution of land property, hence violate the de jure basis of these rights, as well their private nature. This is turn implies that Coasean world is a world where the prevalent idea of mutual causation of harm creates idiosyncratic and partial rather than standardized de jure private property rights in land. As such, this Coasean version of the world fundamentally breaks from the neoclassical view of the capitalist world, where the security and exercise of private property rights in land is a sine qua non condition for the working of the economic system.