Coase Research Articles

Promoting cocoa agroforestry under conditions of separated ownership of land and trees: Strengthening customary tenure institutions in Cameroon

Formal and customary land tenure can encourage the adoption of sustainable land management practices. Yet, certain forms of customary land tenure can deter farmers from practicing agroforestry. One such example is the case of cocoa agroforestry in the Centre region of Cameroon, where cocoa orchards and the fruit trees that grow inside were traditionally inherited separately to different family members. While customary land owners hesitate to allow tree cultivation in their cocoa orchards as they are afraid of losing out while sharing their land, the tree owners would often like to expand the number of fruit trees, but lack the land to do so. This study assessed how various policy instruments can enhance the adoption of agroforestry in this context. Using the Coase theorem, we analyzed seven agroforestry systems of cocoa in association with Safout (Dacryodes edulis), Bush mango (Irvingia gabonensis) and/or Ndjansang (Ricinodendron heudelotii). Land sharing with fruit producers reduced the cocoa mono-croppers’ farm income by 40–80%, while fruit producers benefited especially from the cultivation of Bush mango. According to our baseline Coase theorem results, cocoa agroforestry was socially efficient when 13–60 fruit trees/ha were planted, providing a positive net social benefit (248,753 to 3,394,829 FCFA/ha). The policy intervention scenarios (cocoa certification, payment from voluntary carbon projects and reform of the current customary tenure system) led to more fruit trees being planted (14–71 trees/ha) and increased the net social benefit (266,418 to 5,753,595 FCFA/ha). Both farmer categories gained in each of the scenarios, with the fruit producers benefiting more than the cocoa croppers. Among the investigated policy instruments, a land tenure reform inducing a fair revenue sharing proved to be the most effective in encouraging tree planting in cocoa farms.

The Nature of the Firm Revisited

Ronald Coase is considered the father of law and economics, the most famous economist among lawyers and the most famous lawyer among economists. The aim of the article is to present Ronald Coas' thoughts contained in his first famous work titled The Nature of The Firm in the contemporary economical context. The author presents Coase's profile and subjects his work to a critical analysis. Moreover, the aim of the article is to look at the theses contained in the Coase’s work from the point of view of the 21st century modern economy. The article is based mostly on academic literature.

The Promise of Diversity, Inclusion, and Punishment in Corporate Governance

Governance inclusion mandates require that a corporate board include diverse individuals (such as members of under-represented communities under California’s AB 979) or representatives of a constituency (such as employees under Senator Warren’s Accountable Capitalism Act), and are largely intended to change corporate behavior in a more pro-social direction. This article applies the economic insights of the Coase theorem to determine when and if such inclusion mandates will result in desirable changes to corporate activities. The main promise of inclusion mandates is that they allow the corporation to make its own decisions, based on private information, rather than depend on ex post liability or command-and-control regulation to enforce optimal corporate behavior. The boardroom is a “Coasian bubble” in which the abilities to bargain and contract are greatly enhanced; inclusion of interests in the boardroom allows those interests to be taken into account. Inclusion also results in some transfer of corporate surplus from shareholders to the newly included. This implies that corporate behavior may not change, since all those represented in the boardroom have incentives to maximize corporate surplus. Exceptions are where inclusion enables efficient contracting that was otherwise infeasible, or if the included group has significant interests that are subject to corporate externalities. The latter channel is most likely to result in more pro-social corporate behavior, since such interests represent significant “skin in the game” for avoiding corporate malfeasance. Skin in the game can also be manufactured through ex post liability, such as by making a represented constituency liable for corporate failures or misbehavior; further, such liability may be necessary so that incentives are not degraded where the constituency receives benefits that are not in the nature of residual claims. Viewed through this lens, constituency mandates, in which directors are accountable to groups with significant interests, show some promise for promoting socially beneficial corporate behavior; diversity mandates, in which diverse but atomistic directors generally lack such accountability (at least as proposed), are unlikely to effect such change.

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.

Cross-sectoral externalities related to natural resources and ecosystem services

Standard approaches to environmental and natural resource use externalities generally focus on single-sector resources and user groups. Remedies include Pigouvian-style government constraints, small group controls following Elinor Ostrom, or less frequently, bargaining across users as outlined by Ronald Coase. However, many difficult natural resource management problems involve competing uses of the same resource or multiple interdependent resources, across multiple, heterogeneous sectors. Cross-sectoral externalities are generated and impede attainment of conservation objectives. The multiplicity of resources and stakeholders, who may have different property rights, hold different use or non-use values, have different traditions, or fall under different regulatory regimes, increases the likelihood of multi-jurisdictional conflicts. We provide an institutional analysis following Oliver Williamson's four-levels of institutions (social embeddedness, institutional environment, governance, resource allocation) to illustrate the sources of potential conflict, the costs of addressing them, and the potentials for exchange. In comparing the costs of alternative approaches, we include transaction costs associated property rights; the costs of lobbying, implementing, and enforcing government regulation; and the costs of scaling up from small-group controls when resource problems involve multiple sectors and heterogeneous populations. In our illustrative case examples, instruments that are not formal property rights are exchanged at lower transaction costs. We close by discussing how Coasean, Pareto-improving voluntary exchange agreements may be lower cost, more effective, and more durable solutions than alternative management regimes to mitigate cross-sectoral externalities.

A Coase Theoretic Approach to the Water Conflict between India and China

China is using Tibetan waters as an instrument for strengthening supremacy in the disputed territories. The country is often accused of harming its downstream neighbours through its water management policies, such as the construction of dams for hydropower. Moreover, China has no water treaties with the downstream countries. Only it shares limited data during the monsoon season on upstream flows. So, water conflict is there between China and neighbouring countries. Under such circumstances, conflict assessment is highly needed. Conflict assessment is the primary step in the process of conflict management and resolution. The present article suggests a Coase theoretic approach since Coase theorem is often used as a potential tool for conflict resolution.

Understanding Big Data: Data Calculus in the Digital Era

Information processing has been defined as “the change (processing) of information in any manner detectable by an observer, a process that describes everything that happens in the universe, from the falling of a rock to the printing of a text file from a digital computer system.” Human society has long realized that information processing and sharing are essential to the pursuit of physical, social, and economic well-being. Knowing and sharing information about one’s surroundings is essential to success in the physical world. Knowing and sharing information about one’s “neighbors” is essential to success in the social world. “Knowing-your-customers” (KYC) in order to serve them well is the supreme norm for success in the business world. Sharing that information – the Yellow Pages practice that makes certain personal information, such as name, telephone number, and address public -- has become a tradition in modern human relations. The pervasive use of digitized information has reached a new height that we call the era of data. While this has led to unprecedented societal cooperation, it has also intensified three major concerns: How can we properly protect personal privacy in the age of big data? How do we understand and manage the ownership and distribution of benefits and risks arising from the use of data? Will the use of big lead to winner-take-all markets that undermine competition to the detriment of consumers and society? These are the subjects of this report. We focus on analyzing concrete evidence about data to draw conclusions on its impact. As Nobel Laureate Ronald Coase (1994) suggested, it is important to step away from pure blackboard economics that tends to only live in [a theoretician's] mind: what we need is more empirical work ... An inspired theoretician might do as well without such empirical work, but ... the inspiration is most likely to come through the stimulus provided by the patterns, puzzles, and anomalies revealed by the systematic gathering of data, particularly when the prime need is to break our existing habits of thought. This viewpoint is particularly relevant because, unlike many production inputs, has the properties of non-rivalry and non-separability. Unless an evidence-based, integrated and multi-stakeholder approach is adopted, users can be unintentionally hurt in the name of protection. We don’t want to dismember the goose that laid the golden egg.

Coase and Cap-and-Trade: Evidence on the Independence Property from the European Carbon Market

This paper tests the independence property under the Coase Theorem in a large multinational cap-and-trade scheme for greenhouse gas emissions, the EU Emissions Trading System (EU ETS). I analyze whether emissions of power producers regulated under the EU ETS are independent from allowance allocations, leveraging a change in allocation policy for a difference-in-differences strategy. The evidence suggests that the independence property holds overall and for larger emitters. It fails for small emitters, indicating that transaction costs distort their emission decisions. However, due to their small share of aggregate emissions the independence property remains intact at the sector level.

Revisiting the Coase theorem

We provide a version of the Coase theorem within a general equilibrium framework. We consider an economy with other-regarding preferences, and where rights, licenses, or permissions are required to use, consume or transform some specific commodities. These permissions are initially allocated among consumers and, as the commodities, can be costlessly traded. In this scenario, we define different veto mechanisms and the corresponding core solutions that, naturally, result in the same set of efficient allocations. Our final result sets sufficient conditions on preferences and the requirement of rights to ensure that any equilibrium allocation belongs to the core and, in particular, is efficient.

Clubs, Coase, and the role of government

As Ronald Coase and others have shown, deducing the appropriate role of the government in the economy requires a comparative institutions approach. Trying to generalize from oversimplified specifications regarding transaction costs, according to whether exclusion is possible or not, is a futile exercise. An alternative to the Ostrom matrix is to distinguish private, club, and collective consumption goods according to their technical characteristics, specifically their degree of congestabiilty. The other box of the Ostrom matrix, “common pool” resources, can also be usefully analyzed from a club perspective. Spillover goods are spatial clubs. Lastly, a version of the Coase theorem is offered, which provides the foundation of comparative institutional analysis.

Cross-Sectoral Externalities Related to Natural Resources and Ecosystem Services

Standard approaches to environmental and natural resource use externalities generally focus on single-sector resources and user groups. Remedies include Pigouvian-style government constraints, small group controls following Elinor Ostrom, or less frequently, bargaining across users as outlined by Ronald Coase. However, many difficult natural resource management problems involve competing uses of the same resource or multiple interdependent resources, across multiple, heterogeneous sectors. Cross-sectoral externalities are generated and impede attainment of conservation objectives. The multiplicity of resources and stakeholders, who may have different property rights, hold different use or non-use values, have different traditions, or fall under different regulatory regimes, increases the likelihood of multi-jurisdictional conflicts. We provide an institutional analysis following Oliver Williamson’s four-levels of institutions (social embeddedness, institutional environment, governance, resource allocation) to illustrate the sources of potential conflict, the costs of addressing them, and the potentials for exchange. In comparing the costs of alternative approaches, we include transaction costs associated with property rights; the costs of lobbying, implementing, and enforcing government regulation; and the costs of scaling up from small-group controls when resource problems involve multiple sectors and heterogeneous populations. In our illustrative case examples, instruments that are not formal property rights are exchanged at lower transaction costs. We close by discussing how Coasean, Pareto-improving voluntary exchange agreements may be lower cost, more effective, and more durable solutions than alternative management regimes to mitigate cross-sectoral externalities.

Environmental Justice and Coasian Bargaining: The Role of Race and Income in Lease Negotiations for Shale Gas

Using a unique combination of datasets and estimation techniques, we test whether private lease negotiations to extract oil and natural gas exhibit features of Coasian efficiency. We demonstrate that measures of wealth (including income, house square footage, and land acreage), typically determinants of willingness to pay for environmental quality, do affect bargaining outcomes. However, race, ethnicity, and language also play important roles after conditioning upon these variables, suggesting an environmental injustice and a breakdown of efficient Coasian bargaining. We further demonstrate that failure to negotiate protections in leases leads to increased risk of future drilling violations, which are not offset by local ordinance restrictions. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

What Happened on Blackstone Avenue? Exorcising Coase Theorem Mythology

The present paper revisits the path by which Coase came to set down the result now generally known as the Coase theorem in his 1960 article. I draw on both the published record and archival resources in an effort to clear away some of the mist and, as it will emerge, dispel some of the mythology. As good as the traditional story is—thanks in no small part to Stigler’s hyperbole—the reality is far more interesting, both for what it tells us about Coase’s result and for our understanding of the messy process behind how it came to be. For as we shall see, Coase set out at least three versions of his result, two of them assuredly incorrect, in 1959–60 and had at best a faint sense for the implications of transaction costs for his conclusion—something which he was only put on to by others to whom he showed the original draft of his 1959 article. And as for that fateful evening during which he converted the Chicagoans to his point of view, we shall see both that the extent of the conversion necessary was far less than the traditional story suggests and that it is not at all clear what it was that the Chicagoans believed at the end of the evening, Coase’s 1960 argument notwithstanding.

In Search of Santa Claus: Samuelson, Stigler, and Coase Theorem Worlds

Paul Samuelson was fond of labeling mathematical models with extremely strong and empirically unrealistic assumptions, economics. But there was one economic result that, in Samuelson’s view, could not be captured even in a Santa Claus world: the Coase theorem, an object of his repeated derision. His friend George Stigler, though, had no such problems and, indeed, was perhaps the biggest cheerleader for the theorem. This paper examines their respective treatments of the Coase theorem in an effort to explain their contrasting positions. In doing so, it suggests that their views on appropriate degrees of abstraction--and perhaps the limits of their theoretical imaginations--were conditioned in part by the results to which that abstraction led.

Institutional competition and import of institutions: Theoretical aspects

Modern economy updates the problems of institutional competitions manifested in permanent non-compliance with the rules by the economic agents, the introduction of new institutions, standards, agreements, destruction of the current institution system. The import of the instutitions is the most relevant type of the institional competition. The borrowing of the institutions exert the impact of the established rules on the internal institutions and organizational forms, thus becoming dependent, just like their executors. This provides the initiator of the introduced rules with some benefits and the leading role in the institutional competition. The purpose of the research is to use theory of the institutional competition to propose a unified quality assessment method for the acting and re-introduced institutions to approve of the managerial decisions aimed to adjust the institutional system. The research methodology consists of institutional theory and assessment approaches to classical and functional efficiency, as well as in the field of quality assessment for the institution performance, which are defined as abstract norms and organizational structures, including the development institutions as regional development agencies. The result of the study was a designed general model of institutional competition, presentation of the blocking effect and dysfunction of the imported institution, as well as the proposed unified comparative assessment method for the quality of acting and imported institutions. It is also substantiated that the plot of the Coase theorem is opposite to the "lock-in" effect, while the Coase theorem lacks institutional competition. In practice, transactional costs are shown not to be equal to zero for the institutional competition. When institutions are imported, costs can increase with lock-in effects and dysfunction. In this regard, the introduction of new institutions should be justified with the parameters of the performance efficiency in some countries and with the conditions of the social economic system where they are supposed to be used, taking into account the institutional competition. The institutional competition is showcased as the import of development institutions as regional development agencies. Further research is seen to be connected with testing the proposed approach under the quality assessment criteria from the institutions and designed models for determining the permissible volume of imports of institutions.

Alternative Governance Model for Historical Building Conservation in China: From Property Rights Perspective

With the rapid advancement of urbanisation, the adaptive reuse of heritage plays a key role in achieving sustainable development, which is widely recognised by UNESCO and International Council on Monuments and Sites (ICOMOS). In the process of urban renewal, unclear property rights have seriously hindered the relocation of old houses, compensation and the adaptive reuse of historical buildings, even causing a series of social contradictions, such as violence. Moreover, forced evictions and controversy in dealing with the rights of residents, particularly the so-called ‘nail households’ have attracted public attention. However, few studies have analysed the problems and countermeasures from the perspective of unclear property rights. This study focuses on analysing the unclear property rights of historical buildings to propose an Alternative Governance Model for Historical Building Conservation in China. Founded on the Coase Theorem of externalities and property rights to examine the existing complex property ownership and rights patterns of 63 historical buildings in the famous Pingjiang Historic Block in Suzhou, China, the model provides reasonable and feasible reconstruction schemes for each situation. The operation model can also provide a symbiosis of new and old building solutions for urban renewal in developing countries, which may encounter a similar challenge of urbanisation.

IS COVID-19 AN EXCUSE FOR NON-PERFORMANCE AND NON-ENFORCEABILITY OF BUSINESS CONTRACTS? ANSWERS FROM ECONOMIC ANALYSIS WITH A BRAZILIAN PERSPECTIVE.

) In any contract, parties only perform because it is worthy for them, and law surely can influence their behavior making sure it is not worth breaching. (b) Business contracts with different moment of payment can be addressed as a form of investment, since the party that pays first holds the default risk while financing the activity of the counterparty. (c) COVID 19 imposes great burden and uncertainty towards the contracts and courts may aggravate such uncertainty. (d) Statutory or jurisprudence provisions are not prepared for COVID 19. (e) For its characteristics as Business counterparties, neither of the parties are interested in losing a recurrent investor or a recurrent investment. (f) The Coase theorem, once again, shows itself as the best perspective of analysis. Since neither the Courts nor the statutory provisions can interfere efficiently, only the parties, if in a built environment of low transaction costs, will allocate the burdens in an efficient way.

A neo-institutional economic analysis of revising informal and formal proprietary boundaries

ABSTRACT This paper follows up six propositions in recent works that considered lot boundaries as units of private planning in a state prepared/endorsed layout and interprets land readjustment as a coordinated way to revise that layout. From a neo-institutional economics perspective, it canvasses the difficulties in and coordinated solutions to revising formal and informal proprietary boundaries and the ways the constraints posed by lot boundaries for planning can be overcome. The discussion is anchored by the thesis of the ‘corollary of the Coase Theorem’ that positive transaction costs entail differences in land use efficiency due to differences and changes in the forms of layouts as well as the need for a Coasian firm (coordinated) solutions in boundary revision.

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)

On a Fallacy in the Coase Theorem and the Theorem of Transaction Costs Substitution

Abstract This paper first presents a historical account of the origin of the Coase Theorem. It then elaborates its significance in explaining the working of economic institutions. After expounding the concepts of transaction cost and rent dissipation, it points out an error in the Coase Theorem. Lastly, the paper propounds the Theorem of Transaction Costs Substitution as an extended and general version of the Coase Theorem.