Peter, Roger, Steven, Altug:

There seem to be several issues here. The Coase Theorem concerns 
government policy toward external effects. The Coase article on 
social cost, in my view, contains a momentous contribution to the 
theory of property rights and entrepreneurship, as I have said. This 
is a broader contribution than that represented by the Coase theorem. 
Thus, concern with the meaning of the Coase Theorem is, in my view, a 
narrow concern. Similarly, whether Coase correctly represented Pigou 
is, in my view, a narrow concern.

The narrow concern with the Coase theorem has become popular because 
of the very understandable interest by mainstream economists with 
policy issues. Two particular policy issues have attracted attention. 
The first is the theoretical issue of taxes vs. regulation. This is 
the issue that has been seized on in the textbooks because it is so 
easy to represent technically and also because of the fact that the 
dichotomy lends itself to empirical studies. The second is the 
practical public policy question of comparing different means of 
causing a policy outcome. I presume that this is what Peter and you 
are writing about when you use the phrase "comparative institutions." 
This term is also used by Demsetz in his 1969 "Information and 
Efficiency" paper, where he introduces the "Nirvana approach".

This was not the Demsetz contribution to which I was referring when I 
suggested that a study of his works would reveal more about the 
broader concerns of Coase (see below for more specific references). 
Nevertheless, these broader concerns are relevant to a comparative 
institutions (and Public Choice) analysis. One who recognizes Coase's 
broader concerns would be inclined to (1) define an institution in 
terms of the legal and non-legal rights implied in the definition of 
the institution and (2) to describe the effects of the institution's 
behavior on market interaction by referring to entrepreneurship.

The broader concerns are not relevant to a comparison between a 
Nirvana approach to policy issues and a comparative institution 
approach. Also, the broader concerns are not relevant to the issue of 
whether Coase interpreted Pigou correctly.

I hope that one does not lose sight of the broader contribution that 
Coase made.


A point of interest: In briefly examining the Demsetz 1969 article 
again, where he introduces the Nirvana approach, I did not notice any 
mention of Pigou. Perhaps by 1969, Coase's misinterpretation was 
already recognized.


None of this, of course, has anything to do with how Coase is 
represented in textbooks, I am embarrassed as an economics teacher to say.


Demsetz, Harold.(1969) "Information and Efficiency: Another 
Viewpoint" Journal of Law and Economics. 12 (1): 1-22.



Other Demsetz contributions to property and entrepreneurship:


Demsetz, Harold, "The Exchange and Enforcement of Property Rights," 
Journal of Law and Economics, October, 1964.

Demsetz, Harold. (1968) "Why Regulate Utilities?." Journal of Law and 
Economics. 11 (1): 55-65.

Demsetz, Harold.(1966) "Some Aspects of Property Rights." Journal of 
Law and Economics. (October).

Demsetz, Harold. (1967) "Toward a Theory of Property Rights." 
American Economic Review. 57: 347-73.

Demsetz, Harold. (1970) "The Private Production of Public Goods." 
Journal of Law and Economics. 13: 293-306.

Demsetz, Harold.(1972) "When Does the Rule of Liability Matter?" 
Journal of Legal Studies 1 (1): 13-28.

Demsetz, Harold.(1972) "Wealth Distribution and the Ownership of 
Rights." Journal of Legal Studies 1 (2): 223-232.

Demsetz, Harold, "The Structure of Ownership and the Theory of the 
Firm," Journal of Law and Economics, June, 1983.

Demsetz, Harold, "Purchasing Monopoly," Chapter seven in David C. 
Colander (ed.), Neoclassical Political Economy, Cambridge, Mass.: 
Ballinger Publishing Company, 1983.

Demsetz, Harold.(1997) "The Firm in Economic Theory: A Quiet 
Revolution." The American Economic Review. 87:8 (426-9)

Alchian, Armen and Harold Demsetz. (1972) "Production, Information 
Costs, and Economic Organization." American Economic Review. 62 (5): 777-95.

Alchian, A. and H. Demsetz, "The Property Rights Paradigm," Journal 
of Economic History, March 1973.


Pat Gunning