Pat,

Your posting raises several important issues, 
some of which go in a different direction from where I am headed.

Part of your discussion deals with the question 
of whether the profession properly interpreted 
Coase’s message in “The Problem of Social Cost.” 
This is a complicated issues for a number of 
reasons, not least of which is that Coase has 
claimed in recent years that the whole Coase 
theorem discussion is far removed from the main 
point of his article (the need to do what one 
might call benefit-cost analysis to compare the 
various methods of dealing with social cost 
issues, rather than assuming Pigovian remedies 
are optimal). There is also the related question 
of why Coase waited nearly four decades after the 
publication of this article to weigh in 
forcefully on this issue rather than trying to 
derail the whole “theorem” debate early on. I 
have written on these and related issues in the 
past, at times with co-authors. Your post 
suggests that there are a host of interesting 
issues to deal with here, and I agree.

That said, what I am trying to get at in the 
present paper has little (and likely nothing) to 
do with Coase’s intentions in “PSC” and how the 
professional response compares with this. Rather, 
I am interested in looking at how the idea that 
has come to be labeled “the Coase theorem” has 
been treated in the textbook literature.

Your own take on the Coase theorem reflects one 
facet of the larger set of issues with which I 
plan to deal. You have put what one might call an 
Austrian spin on this, placing the theorem in the 
context of the entrepreneur and all that. 
However, one could easily argue that no theory of 
the entrepreneur is required for any of this­that 
the Coase theorem is a straightforward 
application of Edgeworth Box analysis or that it 
is a corollary of the First Fundamental Theorem 
of Welfare Economics (which, without stating it 
as such, is essentially what Stigler was saying 
when he first named “the Coase theorem” in print 
in the 1966 edition of his Price Theory text. So, 
how did all of this play out in the textbook 
literature? How did the various authors treat the 
theorem? Did they ignore it? If they treated the 
theorem, what form did this treatment take? Was 
it presented as something applicable to actual 
externality policy? Was it presented as a nice fiction? As garbage? Etc.

In fact, of course, there is no “Coase theorem.” 
Rather, there are a number of versions of the 
theorem running around out there, in both the 
scholarly and textbook literatures, and the whole 
thing has taken on a life of its own. I believe 
that the Coase theorem discussion/controversy has 
very interesting parallels to the discussion of 
the invisible hand over the last two centuries. 
Both the invisible hand and the ideas that have 
come to be known as the Coase theorem have given 
rise to enormous literatures, have been the 
subject of multiple interpretations, have been 
used in various different ways by various 
individuals to promote or denigrate certain views 
of the world, ... (And one could also argue that 
the IH and the CT were very minor points for 
Smith and for Coase that were blown up into 
something far larger than each of them intended 
by subsequent commentators, but that goes to the 
whole authors intention issue, which I am not dealing with at this stage.)

All of this makes the Coase theorem (to me, at 
least) a fascinating episode in the history of 
economic ideas. It has had a profound impact on 
scholarship in economics and in law, and so makes 
for an interesting subject for the intellectual 
historian­as Roger Backhouse noted in his 
response to Mason Gaffney’s post wondering why 
one would care about all of this.

Steve Medema