Monday, December 9, 2013

Once More with Feeling: "Coasian Bargaining" Is Simply Bargaining

My "Coasian bargaining" button has been pushed twice in one day. First, Tyler Cowen has it in a blog post (here) this morning. The vacuous, if not pernicious, phrase also appears in the title of a paper being presented at today's Workshop colloquium. So, let me try one more time to make clear why Coase himself would never have used a phrase like "Coasian bargaining."

Since the phrase "Coasian bargain" is often ill-defined, let's start with a couple plausible definitions (I don't think others are plausible):

1. A "Coasian bargain" is one that occurs in the world of "the Coase theorem."

2. A "Coasian bargain" is one that allocates entitlements and  liabilities so as to improve allocative efficiency despite the presence of transaction costs.

Under the first definition, a "Coasian bargain" is impossible because in the real world all bargaining is subject to positive transaction costs. No bargaining is ever costless.

Under the second definition, the modifier  "Coasian" adds nothing to noun "bargain" because, under expected utility theory, all voluntary market exchanges (including, for example, court settlements) meet the definition. Consequently all bargains are Coasian, which is to say that the phrase "Coasian bargains" collapses into the larger category of "bargains."

I am under no illusion that this explanation will stop economists and other social scientists from attributing to Coase all successful, efficiency-enhancing exchanges of entitlements. But if I could convince just one or two people to use the word "bargain" rather than "Coasian bargain," I would be satisfied.

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