The Coase theorem is among the most debated and most misunderstood concepts in the economics and legal literatures. It is at once the cornerstone of the economic analysis of law, an elegant demonstration of the problems with what Ronald Coase has called “blackboard economics,” and an illustration of the central hermeneutic tensions that affect even “scientific” analysis.

Originally coined by fellow Chicagoan George Stigler (1911–1992), based on an analysis of Coase's “The Problem of Social Cost” (1960), the theorem has been stated in several different ways over the years, and the different formulations have slight but not necessarily unimportant variations. Stigler's original statement of the theorem told us that “under perfect competition private and social costs will be equal” (1966: 113). A more typical statement of ...

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