For this installment of my Game-Theory Thursday series (here is the previous installment), I want to feature my 2012 paper “Modelling the Coase Theorem,” which is available here via SSRN. What is so special about this paper, you might ask? In a nutshell, it’s the first paper to apply the methods of game theory to Ronald Coase’s now-famous “farmer-rancher” dispute. By way of background, when Professor Coase published his landmark paper on “The Problem of Social Cost” in the early 1960s, Coase presented this bucolic example to illustrate an intriguing and counter-intuitive idea that has since become known among economists and lawyers as the Coase Theorem–an idea that has shaped my own view of the world and that I have blogged about many times before. But unlike most forms of modern economic analysis, Coase’s “theorem” is based on a verbal argument and is almost always proved arithmetically. That is to say, the so-called Coase Theorem is not really a “theorem” in the formal or mathematical sense of the word. My paper, however, attempts to remedy this deficiency by modelling Coase’s original farmer-rancher problem as a strategic game using the formal methods of game theory. Enjoy!
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