In "The Problem of Social Cost", Coase (1960) used a simplified conception of property
rights as the outcome of mere contracting in independent exchanges. This conception has been
suitable for successfully analyzing many important issues, including that of externalities related
to the use of assets and public goods. However, its implicit assumption that exchange in property
rights does not affect future transaction costs provides an inadequate basis for understanding
property institutions and has ...
In "The Problem of Social Cost", Coase (1960) used a simplified conception of property
rights as the outcome of mere contracting in independent exchanges. This conception has been
suitable for successfully analyzing many important issues, including that of externalities related
to the use of assets and public goods. However, its implicit assumption that exchange in property
rights does not affect future transaction costs provides an inadequate basis for understanding
property institutions and has caused confusion on the efficacy of private ordering and the role of
the state and legal institutions. It has thus limited the scope of most of the economics of so-called
property rights to analyses of political interactions and contract rights in personal exchanges. In
the real world, property is defined by interaction between multiple exchanges which cause
exchange-related non-contractible externalities among market participants. When such
exchange-related externalities are considered, property becomes inherently linked to public and
legal interventions, which are indispensable to reach true property that is, in rem enforcement
and truly impersonal asset-based exchange.
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