ABSTRACT
But perhaps the most important legacy of the Coase theorem was its role in effectively forcing economists to confront the possibility of markets or exchange processes as solutions to situations of externality. Contrary to what is sometimes suggested, marketable permit systems for dealing with pollution problems were not developed out of Coase’s analysis but instead are due to the work of Thomas Crocker (1966) and J.H. Dales (1968) who, though familiar with Coase’s article, developed their ideas independently of it.9 Indeed, the pollution permits system has far more in common with Coase’s analysis of frequency allocation in The FCC than with Coase’s two-party negotiation result in ‘The Problem of Social Cost’. But a reasonable argument can be made that the attention – both positive and negative – devoted to the Coase theorem put market-like solutions on economists’ radar and played a prominent role in their increased willingness to consider, and in the eventual adoption of, market-based systems for dealing with pollution as well as property rights plus exchange-based schemes for dealing with common pool problems and the like. The Coase theorem, then, would seem to have generated its own positive externalities.
