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The '''Coase theorem''' states that if property rights are well-defined and [[transaction costs]] (costs of negotiating) are zero, then the most efficient or [[Pareto optimal]] economic activity will occur regardless of who initially owns the property rights.  Negotiation and market transactions will ensure optimal allocation of property.

The '''Coase theorem''' states that if property rights are well-defined and [[transaction costs]] (costs of negotiating) are zero, then the most efficient or [[Pareto optimal]] economic activity will occur regardless of who initially owns the property rights.  Negotiation and market transactions will ensure optimal allocation of property.

This simple theorem, first announced in a 1960 paper <ref>Ronald H. Coase, “The Problem of Social Cost,” 3 J. Law & Econ. 1 (1960)</ref> by [[Ronald Coase]] which won the Nobel Prize for Economics in 1991, has powerful implications for economics, law and even philosophy.  It is a conservative theorem and thus most schools and professors downplay or distort it.  Coase himself was vilified for years by liberals for it.

This simple theorem, first published in a 1960 paper <ref>Ronald H. Coase, “The Problem of Social Cost,” 3 J. Law & Econ. 1 (1960)</ref> by [[Ronald Coase]] which won the Nobel Prize for Economics in 1991, has powerful implications for economics, law and even philosophy.  It is a conservative theorem and thus most schools and professors downplay or distort it.  Coase himself was vilified for years by liberals for it.

The implications in law are that the best a judge can do for the economy as a whole is to minimize transaction costs, such as bureaucracy.  Court decisions that impose additional procedural obligations, such as ''Goldberg v. Kelly'' (1969), can only detract from overall wealth and efficient economic behavior.  The Coase theorem implicitly holds that many of the legal attempts to improve the economy are illusory, because there is no way to improve over the combination of clear legal entitlements and no government interference.

The implications in law are that the best a judge can do for the economy as a whole is to minimize transaction costs, such as bureaucracy.  Court decisions that impose additional procedural obligations, such as ''Goldberg v. Kelly'' (1969), can only detract from overall wealth and efficient economic behavior.  The Coase theorem implicitly holds that many of the legal attempts to improve the economy are illusory, because there is no way to improve over the combination of clear legal entitlements and no government interference.