With zero transaction costs, bargaining yields efficient outcomes regardless of rights assignment.
Coase's 1960 paper, with the theorem named and formulated by Stigler in 1966. The zero-transaction-cost result was a stepping stone in Coase's argument for studying positive transaction costs rather than the paper's practical conclusion: since transaction costs are never zero, the assignment of rights determines the outcome and institutions matter enormously.
In practice
- Two neighbouring firms could settle a noise dispute in an afternoon, and cannot, because the lawyers, the survey and the leases cost more than the noise.
- A shared driveway dispute is legally trivial and takes two years, because the transaction cost is the whole of the problem.
- Standing
- Rottenberg stated the same invariance result for baseball's labour market in 1956, four years earlier, though the two arguments differ in who bargains.
- Further reading
- Wikipedia
- Subject
- Law & Politics
- Essay
- What can be proved and measured about power