Coase theorem

The Coase theorem states that in a market in which transaction costs are low or non-existent, and that the property rights established in judicial decisions do not allow a sufficient economic solution, there will be necessarily a reallocation of these rights to those who value them most, even if the courts rule against them. All in all, there are many cases in which high transaction costs prevent a reallocation of the rights established in court rulings. In these cases, the courts should try to minimize the costs associated with their rulings, as long as this does not alter the thesis of the law.

It is part of the Economic Analysis of Law, and is attributed to the Nobel Prize winner Ronald Coase.

The assumptions of the Coase theorem are two:

• The costs of negotiation, for the parties, are low.
• Those who have the ownership of the resources can identify the cause of damage to their property, and prevent them by legal means.

Therefore, according to Coase, once property rights are established, public intervention is no longer necessary to deal with the problem of externalities (Coase, 1960).

Considerations about the Coase theorem

The Coase theorem is considered one of the fundamental pillars of the so-called Economic Analysis of Law. The object of lively controversy, the criticisms of the Coase theorem are, in substance, the same as those of all economic analysis of Law, and can be summed up in the shortcomings and deviations caused by the adoption of the microeconomic model of observation of individual behavior (considered rational by said model, even under the prism of one's own and exclusive interest: REM hypothesis, "reasonable egoist man"); add that the "classical" From its origins, the market paradigm of "perfect competition" has prevailed, purely theoretical, and which contemplates monopolistic or oligopolistic situations as simple failures of that; and sees the market as a natural environment for self-regulation, without taking into account the role of the State as a formalizer of customary norms, without which, according to many, the market itself could not exist on a large scale for the most part.

But, even if this is the case, and precisely because it is, the virtues of microeconomic analysis can also be attributed to it, of which nobody has doubted, in modern times, its potentiality to supply concepts; and with this baggage, its ability to provide models to confront reality and help social agents to make choices that seek to maximize, even in relative terms, the welfare of society; It is obvious that legislators and judges, mainly, are among these agents, choosing solutions at the legal level. Framed within this theoretical-practical framework, and without pretending that it offers solutions in a mechanistic way, the Coase theorem is of capital importance.