Experimenting with the Coase theorem

Ramzi Mabsout* (Corresponding Author), Hossein Radmard

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Kahneman, Knetsch, and Thaler's [(1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98, 1325–1348] experiment on the Coase theorem disrupted a string of experimental successes in the 1980s. The source of their refutation is the endowment effect which generates a reluctance to trade. We use Steven Medema's recent benchmark interpretation of the Coase theorem to subject their experiment to methodological scrutiny, generating four distinct explanations of their findings. We find that their explanation is the only one at odds with the theorem. While Kahneman, Knetsch, & Thaler argued that they undermined the Coase theorem, their result is constrained by the exclusion of the rationality assumption and the adoption of the invariance-efficiency criterion. There is no immaculate Coase theorem and therefore no single experimental test that can falsify it. Instead, different experiments test specific deviations from a benchmark theorem.
Original languageEnglish
Pages (from-to)1-17
Number of pages17
JournalJournal of Economic Methodology
Volume27
Issue number1
Early online date23 Apr 2019
DOIs
Publication statusPublished - 2020

Bibliographical note

Funding
This work has been supported by the University Research Board (URB) of the American University of Beirut.

Data Availability Statement

No data availability statement

Keywords

  • Coase theorem
  • transaction costs
  • efficiency
  • experiments
  • decision costs
  • rationality

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