Changes

In no industry are the transaction costs greater than in medical services, where patients and physicians must waste massive amounts of time determining how much a procedure costs, whether a third party will pay for it, and obtaining payment from that third party (such as government or an insurance company).  In some cases the transaction costs are even infinite, as bureaucrats try to prohibit private contracts entirely for legitimate services.  Canada forbids paying privately for medical services, requiring everyone to depend on government controls.

In no industry are the transaction costs greater than in medical services, where patients and physicians must waste massive amounts of time determining how much a procedure costs, whether a third party will pay for it, and obtaining payment from that third party (such as government or an insurance company).  In some cases the transaction costs are even infinite, as bureaucrats try to prohibit private contracts entirely for legitimate services.  Canada forbids paying privately for medical services, requiring everyone to depend on government controls.

The Coase theorem demonstrates that these transaction costs can only detract from overall wealth and efficient economic behavior.  Legal impediments to private contracting for medical services should be removed, as such interference frustrates the ability to reach economically optimal results.  The best that government can do in controlling medical costs is simply to remove the transaction costs and get out of the way so that the parties, patients and physicians, can negotiate optimal arrangements.

The Coase theorem demonstrates that these transaction costs can only detract from overall wealth and efficient economic behavior.  Legal impediments to private contracting for medical services should be removed, as such interference frustrates the ability to reach economically optimal results.  The best that government can do in controlling medical costs is simply to remove the transaction costs and get out of the way so that the parties, patients and physicians can negotiate optimal arrangements.

The Coase theorem also provides economic justification for adhering to Rule of Law, and rejecting an “evolving” Constitution.  As Judge Shadur observed above, as long as there is a rule of law it does not matter to prosperity where that rule assigns the rights.  Legal theorists or litigants cannot devise a new allocation of rights or entitlements that would increase prosperity.  Often the best courts can do is embrace the Rule of Law, and then get out of the way.  Changing rules midstream, as in arbitrarily taking one’s property,  is economically harmful.

The Coase theorem also provides economic justification for adhering to Rule of Law, and rejecting an “evolving” Constitution.  As Judge Shadur observed above, as long as there is a rule of law it does not matter to prosperity where that rule assigns the rights.  Legal theorists or litigants cannot devise a new allocation of rights or entitlements that would increase prosperity.  Often the best courts can do is embrace the Rule of Law, and then get out of the way.  Changing rules midstream, as in arbitrarily taking one’s property,  is economically harmful.

12.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

12.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

13.  (Optional)  Can you think of any consequence from the Coase theorem that is not mentioned in this Lecture?

13.  (Optional)  Can you think of any consequence of the Coase theorem that is not mentioned in this Lecture?

== References ==

== References ==