Discuss the limitations of Coase Theorem.

Coase theorem is the idea that under certain conditions, the issuing of property rights can solve negative externalities. For example, a Forrester will manage their forest to ensure its longevity and protect it from fires. It is their incentive to do so in order for them to be able to sell logs in future years.

The Coase theorem was originally coined by economist, Ronald Coase, in his 1960 paper, ‘The Problem with Social Cost’. He explains that property rights can become conflicting, thereby resulting in inefficient economic results. When property rights are not clearly defined, disputes can arise.

Key Points

• Coase theorem is the idea that under certain conditions, the issuing of property rights can solve negative externalities.
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