Coase-Theorem
The Coase theorem [ koʊz - ] is an important tenet of microeconomics. It describes that participants in a market problems caused by external effects even have been solved if they only negotiate on the allocation of resources, and they can replace at no cost.
The Coase theorem states that markets under the assumptions given below deal very efficiently with externalities. Thus, markets are able to independently address the conditions attached to externalities problems and to share the resources with Pareto- efficient outcome. However, this does not apply if the conditions are not fulfilled, eg are applying significant transaction costs. Also, a lack of allocation of property rights make it very difficult negotiating solutions in the sense of the Coase theorem. As property rights are distributed, however, plays for the agreement on the externality not matter ( Invarianzthese ): The person concerned will always achieve the efficient solution.
The Coase theorem was described in 1960 by Ronald Coase in the article The Problem of Social Cost. The term Coase theorem goes back to George Stigler ( 1966). Ronald Coase was awarded for these and other services in 1991 with the Nobel Prize for Economics.
- 3.1 Transaction costs
- 3.2 extortion in the laissez- faire system
- 3.3 Organisation problem with large groups of stakeholders
- 3.4 State Solution
- 3.5 Distribution Effect
- 3.6 Information asymmetries
- 3.7 Axiomatic bargaining game
- 3.8 Summary
Assumptions
For the validity of the Coase theorem assumes that the negotiators can easily reach an agreement on the allocation of resources. It is in particular assumed that the exchange between the actors are no transaction costs.
The Coase theorem continues to apply only in the case of complete information: Each agent needs to know what effect the externality on the other agents.
Finally, a completely clear about the property rights of the negotiating parties must exist, otherwise neither of the two participants can decide on the damage / benefit.
Examples
Preliminary
We consider two neighbors: A neighbor likes to listen to loud music, so it has a benefit. His neighbor B but is disturbed by the music, thus affecting him negative external effects of music consumption of his neighbors.
Apparently a whole must be considered whether the benefits that A has by listening to loud music, exceeds the cost of B by the noise. If this were not so, there would be an economic perspective a complete waiver of the hearing the music justifiable.
Right to activity ( Laissez-faire-System/Schädigungsrecht )
Suppose now that A has a right to listening to loud music.
Suppose A neighbor had the music consumption benefit of 100 €, while B damage ( costs) in the amount of 200 € will suffer through the music consumption of his neighbors. B would now have his neighbor A 150 €, so that dispensed listening to the music, so both would be better off if A einginge on the offer: A would then have 150 instead of 100 € benefit, B would have only 150 instead of 200 € costs.
Suppose that A would have but by hearing his music now a benefit of € 200, while B would only cost € 100, B would have the A offer more than 200 €, to put an end his music. However, this would exceed its previous costs. Economically it would be Pareto efficient if A could continue to listen to his music, since B would be the now comparatively low cost weighed against the benefits of A reasonably be expected.
Negotiated solutions include the possibility between the two extreme solutions, " Music " and " no music " lying solutions with a. For example, A might make move to reduce its volume while listening to the music of, for example 100 % to only 60 % when the transfer contribution of B this can seem appealing. A market equilibrium is obtained even if the costs of noise reduction (eg noise barrier or relocation) can be financed by the premium of the noise victim.
Right to privacy ( polluter liability rule / Schädigerhaftung )
In the previous scenario it was assumed that A has a right to listen to music, although of course he may voluntarily engage in a negotiated solution with B itself. We change the scenario now on, suppose that B has a right, A to force them to listen to loud music. B, A could now therefore force them to forgo the consumption of music. Now, however, could offer similar to A above B money for loud to be able to listen to music. B would then accept the offer, if A would offer him more money than he costs through music.
Although now the legal position of the negotiating parties has completely changed. However, it is irrelevant whether A has a right to damage or B is entitled to injunctive relief; produced economically speaking here efficiency through negotiated settlement.
Criticism
Under the conditions of missing transaction costs and of the legal safe free bargaining power can be achieved, according to Coase theorem is an efficient solution, for example, is superior to a solution of the Pigouvian tax. The comparison of the above two examples show that it is this even matter how property rights are distributed. An efficient solution of the problem comes about yet.
In reality, however, transaction costs. The efficient solution can then be missed.
Transaction costs
A negotiated solution would fail when transaction costs preclude her, perhaps because the negotiations could be controlled only via expensive lawyers or language barriers stand in the negotiations. If the cost of an attorney or an interpreter exceed the benefits of the contract, no problem solving takes place.
From this perspective, government intervention can be useful because they can contribute to the reduction of transaction costs on missing or incomplete markets. This transaction cost advantage of state versus private ownership and coordination increases with the number of participating economic actors - between which a negotiated settlement is to be achieved - to, but is not automatic or guaranteed as to the state administration, a further layer of transactions and agent - principal problems is established.
Extortion in the laissez- faire system
Since the cause of externalities has maximum bargaining power, he can use them against the injured parties in the negotiations. Although this results in allocative point of view still to Pareto- efficient outcome, but can for the cause into a lucrative source of income (→ Political pension ( rent-seeking ) ).
Organization problem in large groups of participants
The group of victims is usually quite large and leads to significant transaction costs for contract negotiations. Here, there is additionally the free-rider problem ( freeriding ), ie several victims do not participate in the compensation payments to the originator, but still benefit from the reduction of the external effect.
State solution
As agents of the state can intervene in the negotiations in order to reduce these transaction costs. This is about conceivable when many groups are involved in the negotiations and take the state for some of them party. The state might generate some transaction costs, however, are disproportionate, since only the state negotiates as a group, but for a variety of existing groups. The state helps so for example multiple occurrences of information costs to pool centrally, thus ensuring cost benefits.
Distribution effect
Distributional effects are not considered. So it makes microeconomic for the actors quite a difference whether a right to activity or a right to privacy exists. This distributive effect is not, however, appreciated.
Information asymmetries
Information asymmetries can cause market participants to assess their benefit or harm wrong. In the sense of the principal-agent theory, such imbalances by the negotiating parties can be exploited when they act strategically. Results of mechanism design theory show that the Coase theorem does not apply under certain conditions. For example, if the preferences regarding the amount of a public good only themselves known to the individual, it is contrary to the Coase theorem impossible to provide the efficient amount if certain requirements are imposed on the solution.
Axiomatic bargaining game
Coase anticipates the result. The parties negotiate until they can no longer be better off. Coase can not prove that negotiations lead to the optimum, since it implies that negotiations to the optimum. This axiomatic bargaining is part of the concept of cooperative game theory.
Conclusion
The Coase theorem shows that negotiated solutions can work. In the presence of transaction costs, government interventions are feasible, although their use should be carefully weighed.