Ronald Coase's famous Theorem states that externalities - third-party effects of transactions that undermine the supposed optimality of competitive equilibrium - do not need to be corrected by active government policy, as in the classical presentation by A. C. Pigou, if there are complete markets in property rights. This Theorem, however, is inherently flawed, as revealed by “internal” or “immanent” critique of its assumptions. It thus fails, even on its own terms. Beyond this, however, a more radical critique, which foregrounds issues of social structure, social relations, power and conflict, forms the basis for a comprehensive analysis of (capitalist) property rights. This radical analysis of the Coase Theorem and the debate spawned by it has implications for the entire field of “law and economics” studies, and for its central notion that legal doctrine can be based on any set of pure efficiency criteria.
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