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Coase Revisited: Economic Efficiency under Externalities, Transaction Costs, and Nonconvexity

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  • Jean Paul Chavas

Abstract

This paper presents a general-equilibrium analysis of economic efficiency under externalities, transaction costs, and nonconvexity. It applies to market exchange as well as contractual arrangements. We show that the Coase theorem continues to hold under general conditions: The efficient management of externalities remains consistent with aggregate profit maximization under transaction costs and nonconvexity. We examine the role of transaction costs and explore how the minimization of transaction costs is an integral part of efficient allocations. We also show how our analysis applies under nonconvex technology, provided that we allow for nonlinear pricing in markets.

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  • Jean Paul Chavas, 2015. "Coase Revisited: Economic Efficiency under Externalities, Transaction Costs, and Nonconvexity," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 709-734, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201512)171:4_709:creeue_2.0.tx_2-n
    DOI: 10.1628/093245613X14363478578775
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    Cited by:

    1. Jean-Paul Chavas & Eleonora Matteazzi & Martina Menon & Federico Perali, 2021. "Bargaining in the Family," CHILD Working Papers Series 88 JEL Classification: D1, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    2. Chavas, Jean-Paul, 2017. "On food security and the economic valuation of food," Food Policy, Elsevier, vol. 69(C), pages 58-67.
    3. Jean-Paul Chavas & Eleonora Matteazzi & Martina Menon & Federico Perali, 2022. "(In)Efficient Bargaining in the Family," Working Papers 2, SITES.
    4. Aleksandar D. Slaev, 2023. "The Transaction Costs of Sustainability: Coase’s Proviso and the Roles of Environmentalists and the Government," Sustainability, MDPI, vol. 15(4), pages 1-18, February.
    5. Aldo Montesano, 2018. "A Dual Characterization of Pareto Optimality," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(1), pages 153-188, March.

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    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics

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