Manhattan Reborn 1978

Island country, Tokyo.

Setagaya Ward is a high-end residential area lined up along the Odakyu Line.

in the living room.

The "Public Experience Class" hosted by David has entered the third part, a discussion on the Coase Theorem.

In order to clarify the theme for everyone present, he first did a brief science popularization, and then prepared to share some of his thoughts and practical application cases.

"The Coase theorem is named after the famous economist Ronald Harry Coase (ase)."

"In his article "The Problem of Social Cost" published in 60, he proposed that under the conditions of zero transaction costs and fully defined and implemented property rights, external factors will not cause improper allocation of resources."

"Some people also believe that Coase's theorem consists of two theorems."

"Coase's first theorem is ~ If market transaction costs are zero, regardless of the initial arrangement of rights, the market mechanism will automatically make resource allocation achieve Pareto optimality."

"In the real world where transaction costs are greater than zero, Coase's second theorem can be stated as follows: Once the costs of market transactions are taken into account, the initial definition of legal rights and the choice of the form of economic organization will have an impact on the efficiency of resource allocation."

"And what I want to talk about today is the third part of the composition of the death by thirst theorem~"

"That's Coase's third theorem!"

"It describes the selection method of this property rights system, which mainly includes four aspects~"

“First, if the transaction costs under different property rights systems are equal, then the choice of property rights system depends on the cost of the system itself.”

"Second, if a certain property rights system must be built, and different designs and implementation methods of this system have different costs, then this cost should also be considered."

"Third, if the costs of designing and implementing a system are greater than the benefits of implementing the system, there is no need to establish the system."

“Fourth, even if the existing system is unreasonable, if the cost of establishing a new system is infinite, or the benefits brought by the establishment of a new system are less than its costs, then a change of the system is not necessary.”

"Coase's second theorem is the counter-proposition of Coase's first theorem and the core part of the Coase theorem group, while Coase's third theorem is a supplement to Coase's second theorem."

"What Coase's third theorem wants to solve is the problem of Coase's second theorem."

"In "The Problem of Social Cost", it is difficult to find a direct expression of Coase's third theorem, but in the analysis of various theoretical fields of property rights economics, we can see the widespread application of this theorem."

“The analysis of Coase’s first theorem and Coase’s second theorem is completely based on the assumption that the initial definition of property rights is clear. Coase’s third theorem relaxes this assumption and points out the relationship between the clarity of property rights definition and economic efficiency. ”

“Coase’s third theorem assumes that the government can approximately estimate and compare the welfare impacts of different definitions of rights at a relatively low cost, and it also assumes that the government can at least define rights fairly and equitably.”

"Furthermore, Professor Coase also believes that clear definition and allocation of initial property rights can save or even eliminate the need for corrective transactions."

“It would be better to define the initial rights more accurately through the government than to correct the initial allocation of rights through transactions between private individuals.”

"This is the essence of Coase's third theorem."

David explained carefully while writing down the key points with chalk.

Before he knew it, he had written all over the blackboard. After erasing it, he had written all over again.

These long and convoluted economic terminology made Kanesi, Iwasaki Naokami and Iwasaki Ayase feel like they had become "spectators" watching David's story. Just like improv. .

However, among the senior researchers at Nomura Securities Research Institute sitting behind the Iwasaki brothers and sisters, there was a middle-aged man wearing black-rimmed glasses. His eyes were shining when he looked at David~

He raised his hand and asked during the interval of David's explanation.

"Sir, many people in the academic world now believe that the assumption of zero transaction costs in the Coase theorem does not exist (is unrealistic). There is a certain degree of circular argumentation, which is a paradox in itself."

"What do you think...?"

"Thank you for asking, that's a good question." David showed a surprised expression and smiled at the middle-aged man.

"The Coase theorem shows that the true meaning of the market is not prices, but property rights."

"As long as there are property rights, people will naturally "negotiate" a reasonable price."

"So if we want to explain the Coase theorem, we need two prerequisites - clear property rights and transaction costs."

“Clear property rights is only a necessary condition for optimal allocation of resources through market transactions, but it is not a sufficient condition.”

"Transaction costs, simply put, are the time, energy and money other than products that are spent to complete a transaction, such as market research, intelligence collection, quality inspection, condition negotiation, bargaining, drafting contracts, etc. Hiring a lawyer, treating guests to dinner, and finally executing the contract and completing a transaction are all time-consuming and laborious.”

"It is these transaction costs that will make the resource allocation achieved by private transactions impossible to achieve, or people will be discouraged when they see so much trouble."

“So, the inverse form of the Coase theorem is: if there are transaction costs, even if property rights are clear, private transactions cannot achieve the optimal allocation of resources.”

“The two prerequisites of the Coase theorem each have their own implications, but they are not completely independent or unrelated.”

“The most fundamental thing is to clarify the decisive role of property rights in reducing transaction costs.”

"If the property rights are not clear, the consequences will be that the dispute will never be clear, which means that the transaction costs are infinite and no transaction can be completed."

"And if property rights are clearly defined, even if there are transaction costs, people can solve various problems through transactions on the one hand, and on the other hand they can effectively choose the most advantageous transaction method to minimize transaction costs."

"The assumption of zero transaction costs in the Coase theorem itself does not exist (unrealistic). Professor Coase himself has admitted this~"

"He wrote in The Problem of Social Cost that the views expressed thus far assume that transaction costs do not exist."

"Of course, this is a very unrealistic assumption."

“Real work is often costly, and costs at any given rate are enough to wipe out many transactions that would have been possible in a costless pricing system.”

"In other words, when the assumption of many buyers and sellers does not hold true, then transaction costs are less important than the anticipation of supply and demand."

"At this time, economics has entered the realm of game theory, where it is not difficult to make some conclusions with valid results."

David opened his hand to the middle-aged man who asked the question, smiled and said, "I don't know if you have heard of Professor John Nash of Princeton University."

"The Nash equilibrium theory he proposed in the early 50s made the development of game theory a big step forward."

"I once discussed the paradox of Coase's theorem with him during a casual chat."