Publication Number: 2024-04
Publication Date: July 2024
The Coase theorem has been shrouded in ambiguity and confusion throughout its life, this
despite the prominent role that it plays in economic and legal analysis. As this paper
demonstrates, this is no less true of the path by which Coase came to the result that bears his
name. Drawing on published and archival sources, we discuss the challenges that Coase
encountered in formulating his argument and illuminate the roles of other scholars in
correcting Coase’s errors—particularly as regards the impact of transaction costs on his
negotiation analysis—and nudging him toward a theoretically valid result. We also show that
Coase’s legendary ‘conversion’ of the disbelieving Chicago economists was both less
extensive than commonly believed and likely involved a their acceptance of a result that is
both demonstrably incorrect and fundamentally different from that which Coase published in
“The Problem of Social Cost.” All of this works to highlight the ongoing challenges posed by
transaction costs for understanding the domain and range of the Coase theorem, challenges
that are as old as the theorem itself.
