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Coase on the Coase Theorem, “The Social Cost Controversy”

Henry Mohrman
From the journal Man and the Economy


What did Coase teach about “The Social Cost Controversy” in the classroom? In 1972, an important year in the development of the economic approach to law, Coase taught “The Problem of Social Cost” and some important critiques of it, making his classroom a model of the market for ideas. Coase stressed the importance of his proposal for a new welfare economics, in which the opportunity cost of alternateve proposals would be examined, taking transaction costs into account. He used court cases to provide real world examples where transaction costs could be considered. He also presented a comprehensive critique of Pigou and his followers. Coase demonstrated that the nineteenth Century in Britain was not a period of unregulated laissez faire but a time when harmful effects were governed by the common law of nuisance. Accordingly, he advocated neither laissez faire nor government regulation in principle as a solution to problems of harmful effects. Instead, he proposed that problems of harmful effects be examined in their institutional settings considering the cost of transactions, examining the costs and benefits of alternative institutional arrangements. The cases he chose generally involved technical innovation which produced new benefits as well as harmful effects, producing many insights into how society responds to innovation. Coase taught “The Social Cost Controversy” in order to propose his new welfare economics. However, the content of this portion of his course had many practical applications for his students.


A Reconstruction of Coase’s Syllabus

I retained only some materials from Coase’s class. However, from the surviving materials and memory, I can reconstruct for the reader Coase’s syllabus. The order of the articles is the order in which he taught the materials.

  1. R. H. Coase. The Nature of the Firm, 4 Economica (n.s.) 386 (1937).

  2. R. H. Coase. The Theory of Public Utility Pricing and its Application, 1 Bell Journal of Economics 113 (1970).

  3. R. H. Coase. The Marginal Cost Controversy, 13 Economica (n.s.) 278–284 (1946).

  4. Jora R. Minasian. Television Pricing and the Theory of Public Goods, 7 Journal of Law and Economics 71 (1964).

  5. Paul A. Samuelson. Public Goods and Subscription TV: Correction of the Record, 7 Journal of Law and Economics 81 (1964).

  6. R. H. Coase. The Problem of Social Cost, 3 Journal of Law and Economics 1–44 (1960).

  7. Harold Demsetz. When Does the Rule of Liability Matter?, 1 Journal of Legal Studies 13 (1972).

  8. E. J. Mishan. Welfare Economics, Random House, New York 144–153 (1964).

  9. Stanislaw Wellisz. On External Diseconomies and the Government-Assisted Invisible Hand, 31 Economica (n.s.) 345–362 (1964)

  10. R. H. Coase. The Lighthouse in Economics, 17 Journal of Law and Economics 357–376 (1974)

  11. Steven N. S. Cheung. Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements, 12 Journal of Law and Economics 23–42.

I am responsible for any errors in this reconstruction of Coase’s syllabus. I welcome corrections from anyone with better source materials and better memory. I hope to review items 1, 10 and 11 in a separate article titled “The Firm, the Lighthouse, and the Choice of Contractual Arrangements.” Frank Easterbrook recalls an article by William Baxter on airport noise being used in the seminar. I did not find it among my materials, but I am aware that they are incomplete. Many fine articles of the time edited by Coase and published in the Journal of Law and Economics by Coase will give the reader a sense of Coase and the seminar.


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Published Online: 2016-1-13
Published in Print: 2015-12-1

©2015 by De Gruyter

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