Rich Adelstein wrote:
>I teach this material to emphasize what I call (after his discussion 
>of the Leroy Fibre case in the first edition of Economic Analysis of 
>Law) Posner's Corollary: When transaction costs are high, an 
>efficient allocation will be achieved only if the law initially 
>awards the relevant property right to the highest valuing owner, 
>obviating the need for prohibitively costly transactions to move the 
>right toward the highest valuing owner.


I used to think and teach that way too, but more recently I've come 
to believe that this isn't the right way to view this because we're 
relying on an expert (now a judge) to get the right answer. I think 
the truly fundamental idea behind Coase is that trading in decentralized 
systems with the right incentives works better than authoritarian systems.  
If that's true, why leave it to a judge to optimally allocate?  Remember 
Coase's view of judges and legal rules?  In Bass v. Gregory, he said, 
"In deciding this question, the 'doctrine of lost grant' is about as 
relevant as the colour of the judge's eyes." (The Problem of Social 
Cost, p. 15)

I think the real idea behind Coase is that when TC are high, they 
should be lowered.  Property rights are a way to lower TC. Before the 
judge rules, there will be no trading because TC are too high -- no 
one will buy what they think they already own or can use for 
free.  Once the judge rules, TC are greatly lowered because now we 
have a buyer and seller.

If TC are still too high after PR have been assigned, it seems crazy 
to me to argue that we then have the judge get it right.  I think 
Coase's prescription would be, "Then lower the TC some more."  How? 
Arbitration is one way. Liability rules are another.  This seems to 
me to be much truer to Coase's view.

Deirdre was right when she said, "Ronald spent his career trying to 
get economists and regulators to take seriously" the idea of 
transactions costs.  But, Rich, it wasn't to simply say, "Oh, when TC 
are high, the market won't reallocate well so we better get it right 
and have the judge give the PR to who values it more."  That seems 
remarkably uncoasean to me.

Please forgive me for babbling on. I've always been interested in 
Knight, Coase, and the law.  I'll shut up now and listen to what 
others have to say.

Humberto Barreto