the Coase Theorem

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Article Review – Information and the Coase Theorem
What is Coase's central claim? Coase challenges the belief that competitive markets are required for efficiency, claiming that when markets produce inefficiency, people will negotiate until a more efficient outcome is achieved (113).
What does Farrell suggest regarding the benefits of government intervention? To critics of government intervention, Farrell states that laissez-faire economics can only claim to be 'no less' efficient than centralized control under ideal circumstances (116). He compliments this statement by observing that, efficiency aside, governments are better at addressing inequity across society than the free market (116). It's also noted that central authority may be better at securing the interest of unwilling individuals in schemes which yield public benefits (121).

What is Mechanism Design all about? Mechanism Design concerns the approaches which governments take to secure information from people regarding their economic motives (117). Acquiring such information reduces individuals' potential to gain unfair advantage through unequal distribution of knowledge (118). The art of mechanism design is in obtaining desired intelligence without the source realising how it will be used (118). When does a centralized decision maker make the most sense? Centralized influence is useful in establishing a fair status-quo which, though not the best outcome for anyone, represents a palatable result for all.

Farrell highlights that such scenarios aren't always final, instead being a precursor to negotiation, undermining information inequality between the parties involved (125).

What do you think of Hayek's claim that the real economic problem is how best to use knowledge? Hayek's argument is presented as being anti-centralization, based on the view that the amount of knowledge needed to manage an economy exceeds the capacity of a single person or government. Conversely, decentralizing this information means it's more likely to be acted upon effectively (121). Whilst this view is understandable, a reference made to the 'untrustworthy' nature of computers in aiding central authorities to process data seems a little dated, as the internet, in particular social media, gives toady's decision makers greater access to society's opinions.

Works Cited
Farrell, J. “Information and the Coase Theorem.” The Journal of Economic Perspectives, Vol. 1, no. 2, 1987, pp. 113-129