The Optimal Allocation of Scarce Resources: Three Fundamental Theorems in Property Law Article
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Recommended Citation
Will Bunting, The Optimal Allocation of Scarce Resources: Three Fundamental Theorems in Property Law, 76 Baylor L. Rev. 576 (2024)Clicking on the button will copy the full recommended citation.
This Article contends that the scope of the Coase Theorem has been extended too far by those who have interpreted the Theorem as setting forth a powerful argument against public intervention in private markets. The Coase Theorem can be viewed as a decentralization result only if certain restrictive conditions hold true. First, the Coasean prediction that the private exchange of state-enforced private property rights will yield the optimal use of scarce resources in the absence of transaction costs is correct, conditional upon the assumption that a random grant of private property rights is the socially optimal resource allocation rule. This assumption might not hold true, however. This Article provides three economic reasons for why the political process might select a socially suboptimal allocation rule-what this paper terms political transaction costs. Second, the final allocation of scarce resources depends upon the initial wealth endowment of the transacting parties. These wealth endowments, however, might be the product of an inefficient labor market. This Article identifies three sources of market failure in labor markets and contends that these inefficiencies must be fully considered in any broader assessment of the Coase Theorem as a decentralization result.
