ABSTRACT
The Coase Theorem in its most innocuous form appears to be little more than a restatement of the Pareto criterion. A common definition of contract is given in the Restatement of Contracts: “A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” The minimal Coase Theorem can, therefore, be saved, but at a price. Costless bargaining leads to a Pareto optimum only if the classical conception of contract is discarded or if the zero transaction costs (ZTC) world is defined so broadly as to include governmental restrictions. The paradigmatic contract of neoclassical economics and of legal analysis is a discrete transaction in which no duties exist between the parties prior to the contract formation and in which the duties of the parties are determined at the formation stage.
