Externalities

Alex Tabarrok provides a link to an excellent article on the Coase theorem. There may or may not problem with Coase:

If transaction costs are zero--if, in other words, any agreement that is in the mutual benefit of the parties concerned gets made--then any initial definition of property rights leads to an efficient outcome

Here is the rub as established by Coase: all externalities are dual. Can Anyone assert that all Effects of any operation can be reduced to two Parties? There is always the ‘ripple effect of water’and the economic impact of sloughing long-run Costs in immediate payments of impactual Costs. Most of the later generate 'build-up injuries' over time, resulting in down-the-road Costs previously dismissed. There is also the hazard of finding limitation to the Cost area. Take the example used in the Coase article by Friedman: Does the Pollution stop at the planned Resort area, or does the Pollution flow over and past the designated area to the Coast, and even the World? Can Property Rights be defined in such a Scenario? lgl