Does the standoff over the controversial Dakota Access Pipeline falsify the Coase Theorem? In any case, we think Ronald Coase’s analysis of property rights on page 25 of his contrarian but essentially correct 1959 FCC paper might be relevant to the conflict over the placement of this pipeline: “Whether a newly discovered cave belongs to the man who discovered it, the man on whose land the entrance to the cave is located, or the man who owns the surface under which the cave is situated is no doubt dependent on the law of property. But the law merely determines the person with whom it is necessary to make a contract to obtain the use of the cave.”
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I guess it always boils down to the details. When drawing lines, the lines are never fine enough, until you get lawyers and judges involved.
What Coase is saying is that law won’t work well (no matter how many lawyers or judges are involved) if property rights are not clearly defined (in this case, the right to build a pipeline or the right to exclude the building of a pipeline).