Disclaimer. Don't rely on these old notes in lieu of reading the literature, but they can jog your memory. As a grad student long ago, my peers and I collaborated to write and exchange summaries of political science research. I posted them to a wiki-style website. "Wikisum" is now dead but archived here. I cannot vouch for these notes' accuracy, nor can I even say who wrote them. If you have more recent summaries to add to this collection, send them my way I guess. Sorry for the ads; they cover the costs of keeping this online.
Hardin. 1993. Efficiency. In Companion to Contemporary Political Philosophy, Goodin and Pettit, eds. Oxford: Basil Blackwell, 462-470.
"The Coase theorem says that, subject to transaction costs, the production from the joint property of the farmer and the rancher wffl not be affected by how the law assigns the right to use the farmer's property. Suppose the law assigns the right to the farmer, so that the farmer may legally erect a fence to keep the rancher's cattle out. Now, ifthe rancher can get more profit from running cattle on the land than the farmer loses from having the cattle run, the rancher and'the farmer will bargaln over sharlng that extra profit and the cattle will run over the farmer's crops. Suppose the law assigns the right to the rancher. If the fanner can get more profit from not having the cattle on the land than the rancher can get from having the cattle run free, the farmer and the rancher wlll similarly bargain over the extra profit and the cattle will be excluded. Hence, the rule on how to use the property will not determine the property's use. Its possibilities for production will."
Thus, introducing side payments allows us to find the specific point along the Pareto frontier that maximizes production (and thus total income).
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