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MENTAL MODEL · M4695

Coase Theorem

Coase Theorem
BusinessHigh supportMicroeconomics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

If property rights are clearly defined and transaction costs are zero, regardless of the initial allocation of property rights, the market can always achieve an optimal allocation of resources through negotiation, and externality problems can be solved through market mechanisms.

SCAFFOLDING EFFECT

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The theoretical foundation for property rights arrangements. The Coase theorem emphasizes the importance of property rights definition and transaction costs, providing an important framework for understanding environmental policy, intellectual property, and institutional design. However, in reality, transaction costs are often not zero, requiring government intervention.

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When property rights are clear and transaction costs are zero, regardless of the initial ownership of rights, the relevant parties will negotiate to an allocation that maximizes total output (equivalent outcome). When transaction costs are positive, the allocation depends on the initial property rights and the level of transaction costs.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Coase_theoremZH · Explicit
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