Re: Back to slavery

[Paul Phillips <phillp2@xxxxxxxxxxxxxxx>]

Date sent:              Tue, 15 Jul 2003 19:19:50 -0700
Send reply to:          PEN-L list <PEN-L@xxxxxxxxxxxxxxxx>
From:                   "David S. Shemano" <dshemano@xxxxxxxxxxx>
Subject:                Re: [PEN-L] Back to slavery
To:                     PEN-L@xxxxxxxxxxxxxxxx

 snip

> >> This stuff isn't radical. It was developed by Coase, who's very
> >> much part of the Chicago school of laissez-faire economics.
>
> I guess I am asking a much more naive question.  Why is this an issue
> at all to anybody?  I mean, is there anybody who disputes that
> transaction costs matter?  I am a commercial lawyer, and commercial
> lawyers only exist because of transaction costs, so the existence of
> transaction costs is pretty obvious to me.  Is there somebody out
> there who denies this, or used to deny this, other than for some cetis
> paribus mind game?
>
> David Shemano

There are two deeper issues involved here.  As Coase pointed out
in his 1937 article, if transaction costs are significant, markets are
not efficient and therefore must (economically) be replaced by non-
market allocation mechanisms -- what he was argueing for in the
article was for the autocratic, managerial planning form of decision
making.
  But a more fundamental issue relates to the Coase theorum itself -
- that "if there are NO Transaction Costs, the distribution of
property rights does not matter for the efficiency (pareto optimality)
of the market solution."  However, if there ARE transaction costs,
then the distribution of property rights becomes very important to
the efficiency of the result.  This is quite easy to demonstrate with
realistic examples.  What this does raise the vital question of the
distribution of property rights to the efficiency of the non-regulated
market, something that is not dealt with by nc economics and is
avoided like the plague by those economists who reject
government intervention in markets precisely to make them efficient.

Paul Phillips