Coase theorem
The Coase theorem [ koʊz- ] is a theorem of microeconomics . The Coase theorem specifies the conditions under which market actors can efficiently resolve the allocation of resources through negotiations , despite market failure and the resulting existence of externalities . The solution then corresponds to a market equilibrium . Purely economic considerations are used here and any questions of guilt and liability are not taken into account.
The Coase theorem states that markets efficiently deal with externalities under the assumptions given below. According to this, actors in the affected market are able to independently resolve the problems linked to externalities and to distribute the resources with Pareto-efficient results. How the property rights are distributed in this case does not play a role in the agreement on the externality (invariance thesis): those affected will always achieve the efficient solution.
The Coase theorem was described by Ronald Coase in the 1960 article The Problem of Social Cost . The name Coase theorem goes back to George Stigler (1966). Ronald Coase was awarded the Alfred Nobel Memorial Prize for Economics in 1991 for these and other achievements .
Assumptions
No transaction costs
For the Coase theorem to be valid, it is assumed that the negotiating partners can easily reach an agreement on the allocation of resources. In particular, it is assumed that the negotiation between the actors does not result in any transaction costs .
Complete information
Complete information from the agents is required. That means every agent must have knowledge of the effect of the externality.
Rights of disposal
Likewise, for the Coase theorem to be valid, there must be complete clarity about the rights of disposal of the negotiating partners, since otherwise neither participant can decide on the damage / benefit. There is the right to damage ( laissez faire rule), in which the negative external technological effect may be exercised, or liability for damage (right to privacy), which allows the injured party to forbid the externality.
example
initial situation
In the following example, we assume that two companies, a fishing company and a drug manufacturer , are based on a lake. In this example, the rights of disposal are with the drug manufacturer (laissez faire rule), so it can cause social costs . The drug manufacturer pollutes the surrounding nature and the lake through production . As a result of the pollution, the fish population and fish diversity begin to decline, which is damaging to the fishing industry.
Negotiated solution according to Coase
The fishing company will now start negotiations with the drug manufacturer in order to offer them an incentive to avoid harm. To avoid the first unit of damage, the fisherman offers the drug company a transfer amount that corresponds to the cost of avoiding damage. The company will avoid harm and the fisherman will benefit from it . This negotiation will be continued by both parties until the marginal damage costs equal the marginal avoidance costs.
Graphical representation
The starting point of the negotiations is pollutant emissions in the amount of F. If the drug manufacturer were to reduce its pollutant emissions to point C, the fishing company would be spared damage amounting to the area CFBM . For this, the injuring party would have to bear costs equal to the area of SBM . The benefits of reducing damage to the fishing industry are significantly higher than the costs of avoiding pollutants. There is thus a possibility of improving the allocation in the sense of the Pareto criterion. Therefore, the fishing company will pay the drug manufacturer the cost of avoiding pollutants until the marginal cost of avoiding damage equals the marginal damage. This situation is realized in point G.
criticism
Under the conditions of missing transaction costs, complete information and free negotiation possibilities secured by the legal system, an efficient solution can be achieved according to Coase's theorem, which is superior to a solution via the Pigou tax , for example . If these assumptions are not met, an efficient solution may not be found. Various factors such as individual motives or group dynamics also play a role in reality.
Transaction costs
A negotiated solution would fail if it were opposed to transaction costs, for example because the negotiation could only be handled by expensive lawyers or because there are language barriers to the negotiations. If the costs for a lawyer or an interpreter exceed the benefits of the contract, the problem will not be solved. This problem increases the larger the group of participants becomes. Here, the results in addition rider problem ( English free rider problem ,) d. H. Individual victims do not participate in the compensation payments to the perpetrator, but still benefit from the reduction of the external effect.
From this point of view, government interventions can be useful because they can help reduce transaction costs in missing or incomplete markets. This transaction cost advantage of state over private coordination increases with the number of participating economic entities - between which a negotiated solution can be achieved - to, but is not automatic or guaranteed as another layer of transactions and with the state administration principal-agent problems is established .
In addition, the state may also generate certain transaction costs, which are, however, disproportionate since only the state negotiates as a representative group . The state helps, for example, to bundle information costs that occur more than once, thereby ensuring cost advantages.
Bargaining power
Since the cause of the external effects has maximum bargaining power , he can use it against the injured party in the negotiations. From an allocative point of view, this still leads to a Pareto-efficient result, but it can turn into a lucrative line of business for the polluter (see “Striving for additional pensions” ).
Distribution Effect and Social Justice
Distribution effects are not taken into account. In terms of the individual economy, it makes a difference for the actors whether there is a right to activity or a right to privacy. However, this distributive effect is not recognized.
By representatives of the economic analysis of law, e.g. B. Richard Posner , a theory based on the Coase theorem is understood as a preferable basis for legal decisions. Against this background, the Coase theorem is criticized that - similar to the general economic analysis of law - a purely economic perspective is adopted, which abstracts from normative questions according to which a certain behavior (e.g. drug trafficking , environmental pollution , Health impairment or similar) can be socially undesirable regardless of its current economic "benefit". In addition, aspects of social justice are hidden, if z. B. in the area of environmental policy , in which the Coase theorem is often used, environmental protection measures are made dependent on the solvency of those affected.
Information asymmetries
Information asymmetries can lead to market participants incorrectly assessing their benefits or harm. In the sense of the principal-agent theory, such imbalances can be exploited by the negotiating partners if they act strategically. In principle, it is always possible to compensate for the asymmetrically distributed information, but it causes transaction costs or information costs . Through information asymmetries, individual contracting parties can try to gain an advantage over the less informed. This behavior is also called opportunistic action.
Summary
The Coase theorem shows that in a model world, negotiations can lead to efficient solutions for society as a whole . Since the Coase theorem is a theoretical solution, the real application is questionable. The problems presented in section 3 are so serious that they are only used in rare cases. However, in terms of static efficiency, the negotiated solution is much more accurate than a tax or subsidy .
See also
literature
- RH Coase: The Problem of Social Cost. (PDF; 1.5 MB) In: Journal of Law and Economics . Vol. 3 (1960), pp. 1-44.
- Charles B. Blankart: Public Finances in Democracy. 5th edition
- Gregor Enderle, Ansgar Nolte: The Coase Theorem ( Memento from July 19, 2007 in the Internet Archive ) In: Wirtschaftswwissenschaftliches Studium (WiSt), 28th year, issue 4 (April 1999), p. 201.
- Fritz Helmedag: On the marketing of the law: Comments on the Coase theorem. (PDF; 74 kB) In: Wolf, D. / Reiner, S./Eicker-Wolf, K. (Ed.): In Search of the Compass, Political Economy as a Platform Map for the 21st Century. PapyRossa, Cologne 1999, pp. 53-71.
- Lothar Wegehenkel : Coase theorem and market system. Mohr, Tübingen 1980.
- Michael Fritsch: Market failure and economic policy, 8th edition. Verlag Franz Vahlen Munich, Munich 2011
- Hans Frambach: Microeconomics. UVK Verlagsgesellschaft mbH, Constance 2008
- RA Musgrave, PB Musgrave, L. Kullmer: Public finances in theory and practice 1. 6th edition, JCB Mohr (Paul Siebeck), Tübingen 1994
Individual evidence
- ↑ a b c d e f g h i j k Michael Fritsch: Market failure and economic policy . 8th edition. Franz Vahlen Munich, Munich 2011, p. 118 - 126 .
- ↑ a b c d Hans Frambach: Microeconomics . UVK Verlagsgesellschaft mbH, Konstanz 2008, ISBN 978-3-8252-3083-8 , p. 183-231 .
- ^ RA Musgrave, PB Musgrave, L. Kullmer: Public finances in theory and practice 1 . 6th edition. tape 1 .. JCB Mohr (Paul Siebeck), Tübingen 1994.
- ^ Nobel Prize Lexicon . (No longer available online.) Dr. Ansgar Bach, archived from the original on April 15, 2012 ; accessed on June 28, 2017 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ Dr. rer. pole. Enrico Schöbel: Gabler Wirtschaftslexikon - Rent Seeking. Springer Gabler Verlag, accessed June 28, 2017 .
- ↑ Jonathan M. Harris, Brian Roach: Environmental and Natural Resource Economics: A Contemporary Approach , ME Sharpe, 2013, ISBN 0765637944 , p. 53.
