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The Exchange OrderProperty and Liability as an Economic System$
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Richard Adelstein

Print publication date: 2017

Print ISBN-13: 9780190694272

Published to Oxford Scholarship Online: September 2017

DOI: 10.1093/oso/9780190694272.001.0001

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Exchange and Efficiency

Exchange and Efficiency

(p.23) Chapter 2 Exchange and Efficiency
The Exchange Order

Richard Adelstein

Oxford University Press

This chapter articulates the Coase Theorem, which describes how voluntary exchange works when it works perfectly, and considers its implications for both efficient and equitable allocation when conditions are perfect and when they’re not. Distinctions between utility, wealth, and value are developed in relation to the problem of distributional fairness, and transaction costs are introduced as impediments to voluntary exchange, and thus to efficient allocation in markets. Posner extends Coase’s logic to a corollary, that when transaction costs are high, efficiency can only be achieved if rights are granted initially to their highest-valuing owner, and proposes a provocative theory of the judicial role in light of the rule of law and the inevitable subjectivity of justice. This is tested in two cases: a hypothetical case where transaction costs are high, and a real one, involving rights to a significant moment in American history in which they’re low.

Keywords:   Coase Theorem, value, utility, transaction costs, efficient allocation, distributional equity, Richard Posner, rule of law, “I Have a Dream”

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