Legal Dictionary of Pakistan

Coase Theorem

(kohs). An economic proposition describing the relationship between legal rules about entitlements and economic efficiency. ( The theorem, innovated by Ronald Coase, holds that if there are no transaction costs -such as the costs of bargaining or acquiring information - then any legal rule will produce an efficient result. Coase's seminal article was The Problem of Social Cost, 3 <J. Law & Eeon. 1 (1960)."Nothing is: more central to the study of law and economics nor mere responsible for its growth than the Coase Theorem. What the Coase Theorem says, in effect, is that in many instances, the assignment of rights by courts or legal authorities may have litthe market, like an untameable river, will knock out attempts to alter its mighty course.' " Jeffrey L. Harrison, Law and Economics in a Nutshell 56 (1995).