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The Fraser Institute, Essential Coase: The Problem of Social Cost

Essential Coase: The Problem of Social Cost

Welcome to the essential ideas of Ronald Coase.

Coase's most important contribution in economics is his work on the role played by transaction

costs, legal rules, and property rights in allowing or impeding the negotiating and

bargaining that individuals do with one another, particularly when trying to resolve conflicts.

Recall from previous videos that transaction costs are those costs

that people and businesses incur when they exchange goods and services. For example,

the financial costs, as well as the time it takes to find someone with whom to exchange,

to negotiate the exchange, and to enforce the agreement and resolve disputes afterwards.

In his famous article “The Problem of Social Cost,”

Coase explained that in a world without these costs, people would be able to

easily negotiate with each other when conflicts arose to arrive at solutions.

But transaction costs do exist in the real world and they do impede

the bargaining that could be used to resolve conflicts. Coase's key insight is that the

level of transaction costs is affected by legal rules, including property rights.

Basically, good legal rules keep transaction costs low and, thus, help keep disputes to a minimum.

Let's explore this complex but incredibly important idea with Coase's original example

of a conflict between a doctor's office located next to a noisy

candy-maker – a case that ended up in court. The conflict arose because it was unclear if

the candy-maker owned the right to make noise, or if the doctor owned the right to be free of noise.

The lack of clarity of property rights meant that neither party knew how to bargain with the other.

When the court declared that the doctor had a right to be free of noise, bargaining became

easy. If the candy-maker valued the opportunity to continue operating noisily, he knew that he

had to purchase that right from the doctor. If the candy-maker didn't value that opportunity

that highly, he knew that he had to cease operations in that building and move locations.

Creating a clear property right within a legal system facilitated

bargaining and prevented further disputes. The insight from Coase—that transaction costs,

property rights and legal rules are critical to determine the degree to which people

can effectively resolve conflicts and use resources efficiently—spawned an entirely

new field in economics and is one of the reasons he was awarded the Nobel Prize.

For more information on Ronald Coase, visit EssentialCoase.org

And to learn more about Essential Scholars, visit EssentialScholars.org


Essential Coase: The Problem of Social Cost Essential Coase: The Problem of Social Cost Coase esencial: El problema del coste social L'essentiel de Coase : Le problème du coût social エッセンシャル・コース社会的費用の問題 O essencial de Coase: O problema do custo social Эссенциальный Коуз: Проблема социальных издержек Есенціальний Коуз: Проблема соціальних витрат 本质科斯:社会成本问题

Welcome to the essential ideas of Ronald Coase.

Coase's most important contribution in economics  is his work on the role played by transaction A contribuição mais importante de Coase para a economia é o seu trabalho sobre o papel desempenhado pelas transacções Найважливішим внеском Коуза в економіку є його робота про роль, яку відіграють трансакції

costs, legal rules, and property rights in  allowing or impeding the negotiating and custos, normas jurídicas e direitos de propriedade que permitem ou impedem a negociação e a витрати, правові норми та права власності, що сприяють або перешкоджають веденню переговорів, а також

bargaining that individuals do with one another,  particularly when trying to resolve conflicts. переговори, які люди ведуть один з одним, особливо коли намагаються вирішити конфлікти.

Recall from previous videos that  transaction costs are those costs Recorde-se dos vídeos anteriores que os custos de transacção são os custos Нагадаємо з попередніх відео, що трансакційні витрати - це ті витрати, які

that people and businesses incur when they  exchange goods and services. For example, que as pessoas e as empresas incorrem quando trocam bens e serviços. Por exemplo, які несуть люди та компанії, коли обмінюються товарами та послугами. Наприклад,

the financial costs, as well as the time it  takes to find someone with whom to exchange, os custos financeiros, bem como o tempo necessário para encontrar alguém com quem trocar,

to negotiate the exchange, and to enforce the  agreement and resolve disputes afterwards. negociar a troca, fazer cumprir o acordo e resolver os litígios posteriores.

In his famous article “The  Problem of Social Cost,”

Coase explained that in a world without  these costs, people would be able to Коуз пояснив, що у світі без цих витрат люди змогли б

easily negotiate with each other when  conflicts arose to arrive at solutions. negociar facilmente uns com os outros quando surgiam conflitos para chegar a soluções. легко домовлятися один з одним, коли виникали конфлікти, щоб знайти рішення.

But transaction costs do exist in  the real world and they do impede Mas os custos de transacção existem no mundo real e impedem

the bargaining that could be used to resolve  conflicts. Coase's key insight is that the a negociação que poderia ser utilizada para resolver conflitos. A principal ideia de Coase é que a

level of transaction costs is affected by  legal rules, including property rights. O nível dos custos de transacção é afectado pelas regras jurídicas, incluindo os direitos de propriedade.

Basically, good legal rules keep transaction costs  low and, thus, help keep disputes to a minimum. Basicamente, boas regras jurídicas mantêm os custos de transacção baixos e, por conseguinte, ajudam a reduzir ao mínimo os litígios.

Let's explore this complex but incredibly  important idea with Coase's original example Vamos explorar esta ideia complexa, mas incrivelmente importante, com o exemplo original de Coase

of a conflict between a doctor's  office located next to a noisy de um conflito entre um consultório médico situado junto a um local ruidoso

candy-maker – a case that ended up in court. The conflict arose because it was unclear if fabricante de rebuçados - um caso que acabou em tribunal. O conflito surgiu porque não era claro se цукерника - справа, яка дійшла до суду. Конфлікт виник через те, що було незрозуміло, чи

the candy-maker owned the right to make noise, or  if the doctor owned the right to be free of noise. o fabricante de rebuçados tinha o direito de fazer barulho ou se o médico tinha o direito de não fazer barulho. чи виробник цукерок мав право шуміти, чи лікар мав право не шуміти.

The lack of clarity of property rights meant that  neither party knew how to bargain with the other. A falta de clareza dos direitos de propriedade significava que nenhuma das partes sabia como negociar com a outra. Відсутність ясності щодо прав власності означала, що жодна зі сторін не знала, як домовлятися з іншою.

When the court declared that the doctor had a  right to be free of noise, bargaining became Коли суд визнав, що лікар має право не шуміти, торг став

easy. If the candy-maker valued the opportunity  to continue operating noisily, he knew that he fácil. Se o fabricante de rebuçados valorizava a oportunidade de continuar a trabalhar ruidosamente, sabia que легко. Якщо виробник цукерок цінував можливість продовжувати галасливо працювати, він знав, що він

had to purchase that right from the doctor. If  the candy-maker didn't value that opportunity tinha de comprar esse direito ao médico. Se o fabricante de rebuçados não valorizasse essa oportunidade повинен був купити це право у лікаря. Якщо виробник цукерок не цінував цю можливість

that highly, he knew that he had to cease  operations in that building and move locations. que, por isso, sabia que tinha de cessar a actividade nesse edifício e mudar de local. Він знав, що має припинити діяльність у цій будівлі та змінити місце розташування.

Creating a clear property right  within a legal system facilitated A criação de um direito de propriedade claro no âmbito de um sistema jurídico facilitou

bargaining and prevented further disputes. The insight from Coase—that transaction costs, A negociação e a prevenção de novos litígios. A ideia de Coase - que os custos de transacção,

property rights and legal rules are critical  to determine the degree to which people os direitos de propriedade e as normas jurídicas são fundamentais para determinar o grau em que as pessoas สิทธิในทรัพย์สินและกฎทางกฎหมายเป็นสิ่งสำคัญในการกำหนดระดับที่ผู้คน

can effectively resolve conflicts and use  resources efficiently—spawned an entirely pode efectivamente resolver conflitos e utilizar os recursos de forma eficiente - deu origem a uma สามารถแก้ไขข้อขัดแย้งได้อย่างมีประสิทธิภาพและใช้ทรัพยากรอย่างมีประสิทธิภาพ - เกิดจากทั้งหมด можуть ефективно вирішувати конфлікти та раціонально використовувати ресурси - породили цілу

new field in economics and is one of the  reasons he was awarded the Nobel Prize. um novo domínio da economia e é uma das razões pelas quais lhe foi atribuído o Prémio Nobel. Нова галузь в економіці і одна з причин, чому він був удостоєний Нобелівської премії.

For more information on Ronald  Coase, visit EssentialCoase.org

And to learn more about Essential  Scholars, visit EssentialScholars.org