Reciprocity principle and private property rights in land: Coasean world is neither neoclassical nor capitalist

Abstract

The “Coase theorem” states that in a zero-transaction cost neoclassical world society’s wealth is not affected by the allocation of liabilities rules. The “theorem” rests upon two fundamental premises: the first concerns Coase’s view of mutual causation of harm, namely the reciprocity principle, and the second refers to his understanding of private property as a bundle of use rights. However, when these two premises are specifically applied in cases of trespass to land, not only portray a blur picture of private property, but they also contradict the very nature of rights over property. Specifically, I am arguing that these two premises undermine the centrality of exclusion rights to the institution of land property, hence violate the de jure basis of these rights, as well their private nature. This is turn implies that Coasean world is a world where the prevalent idea of mutual causation of harm creates idiosyncratic and partial rather than standardized de jure private property rights in land. As such, this Coasean version of the world fundamentally breaks from the neoclassical view of the capitalist world, where the security and exercise of private property rights in land is a sine qua non condition for the working of the economic system.