Coase Theorem[]

“As long as there are well defined property rights (and no transactions costs) externalities will not cause a breakdown in the allocation of resources.” [1]
"Coase Theorem: If there are zero transaction costs, the efficient outcome will occur regardless of legal entitlement. If the property owners and the RR can deal costlessly, it does not matter FROM AN EFFICIENCY STANDPOINT who has the legal 'right.' " [2]

Basically this theory supports the idea that markets tend towards clearing but does not downplay the very real transactions costs.


The main counter to the Coase Theorem is the endowment effect, which causes people to value an object more if it is recognized that the object is theirs. Thus it would matter who has the legal right to what.


  1. follow Coase link below
  2. follow law school link below