Law and Economics for Civil Law Systems
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Law and Economics for Civil Law Systems

Ejan Mackaay

Ejan Mackaay offers a comprehensive look at the essential points of economic reasoning, the Coase Theorem, and legal institutions such as intellectual property, extra-contractual civil liability and contracts. The book’s structure mirrors the way law is taught in civil law countries, with structured presentations, references to civil code articles paired with non-technical explanations, and limited reliance on graphs. This English-language version builds on the success of the author’s 2008 French-language textbook on law and economics from a civil law perspective.
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Chapter 7: The Coase Theorem

Ejan Mackaay


The current law and economics movement really began with Ronald Coase’s 1960 article on social cost. During the first half of the 20th century, economics had succeeded in creating formal models capturing the intuition dating back to Adam Smith that markets, left to themselves, would generally lead to the best arrangements for maximising overall welfare. 1 In his widely respected treatise on welfare economics, the English economist Arthur Cecil Pigou challenged this conclusion. He showed that such a fortunate outcome would not be forthcoming in cases where a market could not be established for items that are nonetheless scarce. The specific case that interested him was that of external effects or externalities, also called neighbourhood effects or spillover effects.

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