ECO320Y5 Lecture Notes - Lecture 9: Coase Theorem, Anthony T. Kronman, Transaction Cost

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18 Nov 2016
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Eco320 lecture 9: topics in the economics of contract law. Theorem of coase: bargaining regardless of the legal assignment of property rights. When transaction costs are zero (0), an efficient (socially optimal) use of resources results from private. The converse of the theorem of coase is based on the transaction cost exception: When transaction costs are high enough to prevent bargaining, the efficient use of resources will depend on how property rights are assigned. Structure the law so as to remove the obstacles to private agreements. Transaction costs are the costs of a bargain or exchange. Search costs (looking for the appropriate contract) Document costs (legal fees in drafting agreements) An example of maintaining low transaction costs by defining property rights clearly and simply is maintaining searchable public records. Sometimes transaction costs might cause the cost of acquiring essential information to exceed the benefit of disclosure.

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