Changes

Chicago federal trial judge Milton Shadur explained the legal meaning of this theorem.  “So long as the rule of law is known when parties act, the ultimate economic result is the same no matter which way the law has resolved the issue.”<ref>''Coltman v. Commissioner'', 980 F.2d 1134, 1137 (7th Cir. 1992).</ref>  Whether the law gives an entitlement to a rich man or a poor one, the economic activity will be the same, assuming people can bargain freely with each other.

Chicago federal trial judge Milton Shadur explained the legal meaning of this theorem.  “So long as the rule of law is known when parties act, the ultimate economic result is the same no matter which way the law has resolved the issue.”<ref>''Coltman v. Commissioner'', 980 F.2d 1134, 1137 (7th Cir. 1992).</ref>  Whether the law gives an entitlement to a rich man or a poor one, the economic activity will be the same, assuming people can bargain freely with each other.

An oversimplication of this concept is Ralph Waldo Emerson’s famous statement that if a man can “make a better mouse-trap … [then] the world will make a beaten path to his door.”  Assuming people can buy and sell without regulatory or other barriers, it does not matter who invents the mousetrap or who obtains legal rights to it.  The free market will ensure that the better mousetrap is sold to the public for the benefit of all involved.  

An oversimplification of this concept is Ralph Waldo Emerson’s famous statement that if a man can “make a better mouse-trap … [then] the world will make a beaten path to his door.”  Assuming people can buy and sell without regulatory or other barriers, it does not matter who invents the mousetrap or who obtains legal rights to it.  The free market will ensure that the better mousetrap is sold to the public for the benefit of all involved.  

The meaning of Coase’s insight for government regulation was clear. A society is better off by simply assigning property rights, reducing transaction costs, and getting out of the way so that the market process can reach its most efficient result.  Government regulations that add transaction costs hurt efficiency and prosperity.  In response to the question “What’s an example of bad regulation?,” Coase replied, “I can’t remember one that’s good.”

The meaning of Coase’s insight for government regulation was clear. A society is better off by simply assigning property rights, reducing transaction costs, and getting out of the way so that the market process can reach its most efficient result.  Government regulations that add transaction costs hurt efficiency and prosperity.  In response to the question “What’s an example of bad regulation?,” Coase replied, “I can’t remember one that’s good.”