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The Pointlessness of Pareto: Carrying Coase Further

Guido Calabresi
The Yale Law Journal
Vol. 100, No. 5, Centennial Issue (Mar., 1991), pp. 1211-1237
DOI: 10.2307/796691
Stable URL: http://www.jstor.org/stable/796691
Page Count: 27
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The Pointlessness of Pareto: Carrying Coase Further
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Abstract

The ideas of Vilfredo Pareto and Ronald Coase have been highly influential in the field of law and economics. Guido Calabresi begins this Article by integrating the insights of these two thinkers so as to shed new light on them. The Coase theorem is generally taken to mean that, in the absence of transaction costs, any starting point will be, or will immediately lead to, an efficient end point. This Article argues that defining efficiency according to a strict Pareto criterion means that any starting point will be or immediately lead to an efficient end point-even given transaction costs. Similarly, the Article argues that consideration of Coase's ideas should change how we think about the Pareto criterion. A distinction is generally drawn between moves which take us to the Pareto frontier-thought of as value-neutral, efficient changes-and actions which shift the frontier itself. Applying Coase's essential insight that transaction costs are costs like any other, however, leads to the breakdown of this distinction. The author argues that all moves from the status quo are either to someone's disadvantages, or represent a shift of the frontier, or both. The Pareto criterion, therefore, can no longer serve as a value-neutral normative guide. Once we have recognized this, the author concludes, we will be better able to develop a meaningful taxonomy of possible moves, and to consider which of these to pursue. The final section of the Article offers thoughts as to what such a new taxonomy might look like.

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