Legal Fiction: An Intellectual History of the Coase Theorem
FAIN: FB-55611-11
Steven George Medema
University of Colorado, Denver (Denver, CO 80202-1702)
I am seeking an NEH Fellowship to support the writing of a book-length intellectual history of the Coase theorem, one of the most important and controversial ideas to emerge in the post-WWII economics literature. The Coase theorem has had a revolutionary impact both on economics, through its implication that markets can resolve externality problems (such as pollution), and on law, particularly through its role in the development of the modern “law and economics” movement. The theorem is a fiction, largely devoid of applicability to the real world, yet became the subject of a raging debate among economists, legal scholars, and others that continues to this day. The theorem's genesis, the five-plus decades of controversy over its correctness and applicability, and the ideologically-charged nature of many aspects of this make the story of the theorem’s diffusion a fascinating moment in the history of ideas and provides interesting insights into the sociology of the economics profession.
Associated Products
The Importance of Being Misunderstood: The Coase Theorem and the Legacy of ‘The Problem of Social Cost' (Article)Title: The Importance of Being Misunderstood: The Coase Theorem and the Legacy of ‘The Problem of Social Cost'
Author: Steven G Medema
Abstract: A careful reading of ‘The Problem of Social Cost’ suggests that the negotiation result
was not its main message but a means to a different end, and Coase has reinforced this
perception in several subsequent commentaries. The argument to be made here, however,
is that, viewed from the perspective of the history of economics, the Coase theorem is
the most important message to emerge from Coase’s analysis – not because it has been the most remarked upon aspect of Coase’s discussion (which is true) but because of the impact
that it has had on economic thinking and policy making.
Year: 2013
Primary URL:
http://www.tandfonline.com/doi/abs/10.1080/19390459.2013.835122?journalCode=rjnr20#.V5A1b1ffY3QFormat: Journal
Periodical Title: Journal of Natural Resources Policy Research 5 (Fall 2013): 249-53
The Coase Theorem Down Under: Revisiting the Economic Record Controversy (Article)Title: The Coase Theorem Down Under: Revisiting the Economic Record Controversy
Author: Steven G Medema
Abstract: This article examines the debate over the Coase theorem that played out in the Economic Record during the 1970s. This case is uniquely illustrative of the issues with which economists and legal scholars grappled in assessing the Coase theorem’s correctness, relevance, and applicability to legal and economic policy questions and provides insight into the larger set of issues that surrounded the diffusion of the Coase theorem in the economics profession and literature – including its lack of stabilised meaning.
Year: 2014
Primary URL:
http://www.tandfonline.com/doi/abs/10.1080/18386318.2014.11681252Format: Journal
Periodical Title: History of Economics Review 59 (Winter 2014): 1-19.
The Curious Treatment of the Coase Theorem in Environmental Economics 1960-1979 (Article)Title: The Curious Treatment of the Coase Theorem in Environmental Economics 1960-1979
Author: Steven G. Medema
Abstract: This article examines the first two decades of the history of the Coase theorem in environmental economics, a period during which the theorem’s validity was widely acknowledged but its relevance for economic analysis of environmental issues was almost universally dismissed. The repeated claims of the theorem’s irrelevance and its dismissive treatment in the literature raise the question of why environmental economists were so interested in the Coase theorem in the first place. Several explanations are offered here including the roots of environmental economic theory in the theory of externalities, economists’ fascination with the interesting and challenging theoretical puzzle posed by the theorem, and the normative and ideological thrust that permeated discussions of the theorem, both within and outside the field of environmental economics.
Year: 2014
Primary URL:
http://reep.oxfordjournals.org/content/8/1/39.shortFormat: Journal
Periodical Title: Review of Environmental Economics and Policy 8 (Winter 2014): 39-57.
Neither Misunderstood Nor Ignored: The Early Reception of Coase’s Wider Challenge to the Analysis of Externalities (Article)Title: Neither Misunderstood Nor Ignored: The Early Reception of Coase’s Wider Challenge to the Analysis of Externalities
Author: Steven G. Medema
Abstract: The ‘Coase theorem’ has long been the idea most commonly associated with Ronald
Coase’s analysis in «The Problem of Social Cost». Yet, Coase frequently argued late in
his career that he had been misunderstood, and that the central message(s) of the article
lay elsewhere. Though virtually all of the discussion in decades following the publication
of «The Problem of Social Cost» focused on Coase’s negotiation result, the
fact is that Coase’s message was not, at the start, misunderstood. This paper takes up
a number of the treatments of «The Problem of Social Cost» in the years immediately
following its publication to demonstrate that Coase’s emphasis on the reciprocal nature
of externalities, the importance of transaction costs, the possibility of merger solutions,
the costs associated with state action, and the need for a comparative institutional
approach were anything but lost on these early commentators. It was only later
that the negotiation result became the major fixation of interpreters of Coase’s work.
Year: 2014
Primary URL:
http://www.libraweb.net/articoli.php?chiave=201406101&rivista=61Format: Journal
Periodical Title: History of Economic Ideas 24 (No. 1 2014): 111-132.
1966 and All That: The Birth of the Coase Theorem Controversy (Article)Title: 1966 and All That: The Birth of the Coase Theorem Controversy
Author: Steven G. Medema
Abstract: The year 1966 was central to the history of the Coase theorem debates, featuring
the entry of the idea of a ‘Coase theorem’ into economic discourse and the eruption
of the controversy over the the correctness of Coase’s negotiation result. This
paper examines economists’ treatments of Coase’s result in 1966 and through the
remainder of the decade, a period during which its place in the professional discourse
began to solidify and three ‘camps’ began to develop around it: those who
believed Coase’s result correct but of limited real-world applicability, those who
found it relevant for explaining and devising policy with regard to a wide swath of
externality-related phenomena, and those who argued and purported to demonstrate
that this result was simply incorrect or wrong-headed on one or another grounds.
Year: 2014
Primary URL:
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9303911&fileId=S1053837214000340Format: Journal
Periodical Title: Journal of the History of Economic Thought 36 (September 2014): 271-303.
Juris Prudence: Calabresi’s Uneasy Relationship with the Coase Theorem (Article)Title: Juris Prudence: Calabresi’s Uneasy Relationship with the Coase Theorem
Author: Steven G. Medema
Abstract: This article analyzes Guido Calabresi’s relationship with the idea
that has come to be known as the Coase theorem. Because much of Calabresi’s
work with the Coase theorem occurred on the front end of the theorem’s
history, Calabresi was a player in how the Coase-theorem discussion played out
in the early years—particularly within law. This early engagement also made
him responsible—both directly, through his writings, and indirectly, through his
students and others influenced by his writings—for much of the early diffusion
of the Coase theorem in legal literature. Calabresi was a legal scholar with
roots in both economics and legal realism who was enamored of the potential
power of Coase’s result as he (Calabresi) interpreted it—an interpretation in
certain ways radically different from Coase’s own conception of his negotiation
result—even if not convinced of its real-world applicability. Although he
initially found in Coase’s result the basis for legal-decision criteria that would
promote efficient allocations of resources, Calabresi eventually concluded that
its true power lay in its implications for the distributional effects of legal rules.
Year: 2014
Primary URL:
http://scholarship.law.duke.edu/lcp/vol77/iss2/5/Format: Journal
Periodical Title: Law and Contemporary Problems 77 (No. 2, 2014): 65-95.
The 8th Duke of Argyll, the Economics of Land Tenancy, and Stigler’s ‘Coase Theorem’ (Article)Title: The 8th Duke of Argyll, the Economics of Land Tenancy, and Stigler’s ‘Coase Theorem’
Author: Steven G. Medema
Author: Kirk D. Johnson
Author: Warren J. Samuels
Abstract: The view that agricultural tenancy relationships give rise to inefficiencies of various
types, including underinvestment in agricultural improvements, has a long history in economic
analysis, tracing back at least to Adam Smith’s commentary on the subject in The
Wealth of Nations. The present article explores the analysis of tenancy contracting found in
the writings of George Douglas Campbell, the 8th Duke of Argyll, who argued the opposite
in 1877 – supporting the efficiency of this system against those advocating mandatory compensation
for tenant investments at the expiration of leases. Central to Argyll’s position, as
we demonstrate, is an argument that embodies the economic logic and results of the modern-
day Coase theorem – in particular, its assertion that alternations of legal regimes will
not impact the allocation of resources. We also illustrate how Argyll’s defense of the market
system combined elements of historical analysis, economic logic, and appeal to the role of
habit and custom in market relationships in ways that anticipated more recent development
in economic analysis of law and property rights.
Year: 2014
Primary URL:
http://www.francoangeli.it/riviste/Scheda_Rivista.aspx?IDArticolo=52417&idRivista=121Format: Journal
Periodical Title: History of Economic Thought and Policy 3: (2-2014): 5-28.
Debating Law’s Irrelevance: Legal Scholarship and the Coase Theorem in the 1960s (Article)Title: Debating Law’s Irrelevance: Legal Scholarship and the Coase Theorem in the 1960s
Author: Steven G. Medema
Abstract: This Article examines the diffusion of
Coase's negotiation result in the legal literature during the 1960s. In
particular, the Article will focus on how the negotiation result posed a
challenge for received legal thinking, how Coase's result related to far
older attempts to bring economic thinking to bear on the law, how
legal scholars utilized this result in their analysis, and how its treatment
by legal scholars compares to that accorded it by economists
during this formative stage in the Coase theorem's history. What will
emerge, in the end, is an enhanced understanding of how the Coase
theorem came to have a place in legal scholarship, as well as some
additional insight into this neglected epoch in the history of the economic
analysis of law.
Year: 2014
Primary URL:
http://scholarship.law.tamu.edu/lawreview/vol2/iss2/3/Format: Journal
Periodical Title: Texas A&M Law Review 2 (Fall 2014): 159-213.
‘A Magnificent Business Prospect …’: The Coase Theorem, the Extortion Problem, and the Creation of Coase Theorem Worlds (Article)Title: ‘A Magnificent Business Prospect …’: The Coase Theorem, the Extortion Problem, and the Creation of Coase Theorem Worlds
Author: Steven G. Medema
Abstract: The Coase theorem, circa the 1970s, had no settled meaning or content; instead, that meaning and content was created – and in differing ways – by the modeling choices of scholars who attempted to grapple with and assess the proposition that Coase had laid out in 1960. These modeling decisions included both the theoretical frameworks laid onto the theorem and the assumptions (including meanings ascribed thereto) said to underlie it. The present article illustrates this using the 1960s and 1970s extortion debate as a backdrop, showing how conclusions reached regarding the theorem's validity hinged on the Coase theorem worlds created by the authors involved.
Year: 2015
Primary URL:
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9678564Format: Journal
Periodical Title: Journal of Institutional Economics 11 (June 2015): 353-78.
Crossing the Atlantic with Calabresi and Coase: Efficiency, Distribution, and Justice at the Origins of Economic Analysis of Law in Britain (Article)Title: Crossing the Atlantic with Calabresi and Coase: Efficiency, Distribution, and Justice at the Origins of Economic Analysis of Law in Britain
Author: Steven G. Medema
Abstract: The slow diffusion of the economic analysis of law into Europe has been much remarked
upon in the literature, but the diffusion itself has not, to this point, been
made the subject of historical study. The present paper examines the two earliest substantive
discussions of economic analysis of law in the British literature and the
somewhat unlikely sources from which these discussions emanated. In doing so, it
highlights the possibilities and limitations that were seen to attend the application of
economic ideas to legal thinking and points to the impediments to a broad acceptance
of the economic approach.
Year: 2015
Primary URL:
http://www.libraweb.net/articoli.php?chiave=201506103&rivista=61Format: Journal
Periodical Title: History of Economic Ideas 23(3 2015): 61-87.