Editing Market failure (section)

====Coase theorem====
The [[Coase theorem]], developed by [[Ronald Coase]] and labeled as such by George Stigler, states that private transactions are efficient as long as property rights exist, only a small number of parties are involved, and transactions costs are low. Additionally, this efficiency will take place regardless of who owns the property rights. This theory comes from a section of Coase's Nobel prize-winning work ''[[The Problem of Social Cost]]''. While the assumptions of low transactions costs and a small number of parties involved may not always be applicable in real-world markets, Coase's work changed the long-held belief that the owner of [[property rights]] was a major determining factor in whether or not a market would fail.<ref>Michael Parkin (2008). ''Microeconomics'', 9th Ed. p. 379. University of Western Ontario.</ref> The Coase theorem points out when one would expect the market to function properly even when there are externalities.

<blockquote>A market is an institution in which individuals or firms exchange not just commodities, but the ''rights'' to use them in particular ways for particular amounts of time. [...] Markets are institutions which organize the ''exchange of control'' of commodities, where the nature of the control is defined by the property rights attached to the commodities.<ref name="rees"/></blockquote>

As a result, agents' control over the uses of their goods and services can be imperfect, because the system of rights which defines that control is incomplete.  Typically, this falls into two generalized rights – ''excludability'' and ''transferability''.  Excludability deals with the ability of agents to control who uses their commodity, and for how long – and the related costs associated with doing so.  Transferability reflects the right of agents to transfer the rights of use from one agent to another, for instance by selling or [[leasing]] a commodity, and the costs associated with doing so.  If a given system of rights does not fully guarantee these at minimal (or no) cost, then the resulting distribution can be inefficient.<ref name="rees"/> Considerations such as these form an important part of the work of [[institutional economics]].<ref name="bowles">{{cite book | last = Bowles  | first = Samuel | title = Microeconomics: Behavior, Institutions, and Evolution | publisher = Russel Sage Foundation
  | year = 2004  | location = United States}}</ref> Nonetheless, views still differ on whether something displaying these attributes is meaningful without the information provided by the market price system.<ref>Machan, R. Tibor, [http://media.hoover.org/documents/0817929428_xi.pdf ''Some Skeptical Reflections on Research and Development''], Hoover Press</ref>