TY - JOUR

T1 - Experimenting with the Coase theorem

AU - Mabsout, Ramzi

AU - Radmard, Hossein

N1 - Funding
This work has been supported by the University Research Board (URB) of the American University of Beirut.

PY - 2019/4/23

Y1 - 2019/4/23

N2 - Kahneman, Knetsch, and Thaler's [(1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98, 1325–1348] experiment on the Coase theorem disrupted a string of experimental successes in the 1980s. The source of their refutation is the endowment effect which generates a reluctance to trade. We use Steven Medema's recent benchmark interpretation of the Coase theorem to subject their experiment to methodological scrutiny, generating four distinct explanations of their findings. We find that their explanation is the only one at odds with the theorem. While Kahneman, Knetsch, & Thaler argued that they undermined the Coase theorem, their result is constrained by the exclusion of the rationality assumption and the adoption of the invariance-efficiency criterion. There is no immaculate Coase theorem and therefore no single experimental test that can falsify it. Instead, different experiments test specific deviations from a benchmark theorem.

AB - Kahneman, Knetsch, and Thaler's [(1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98, 1325–1348] experiment on the Coase theorem disrupted a string of experimental successes in the 1980s. The source of their refutation is the endowment effect which generates a reluctance to trade. We use Steven Medema's recent benchmark interpretation of the Coase theorem to subject their experiment to methodological scrutiny, generating four distinct explanations of their findings. We find that their explanation is the only one at odds with the theorem. While Kahneman, Knetsch, & Thaler argued that they undermined the Coase theorem, their result is constrained by the exclusion of the rationality assumption and the adoption of the invariance-efficiency criterion. There is no immaculate Coase theorem and therefore no single experimental test that can falsify it. Instead, different experiments test specific deviations from a benchmark theorem.

U2 - 10.1080/1350178X.2019.1608457

DO - 10.1080/1350178X.2019.1608457

M3 - Article

VL - 27

SP - 1

EP - 17

JO - Journal of Economic Methodology

JF - Journal of Economic Methodology

SN - 1350-178X

IS - 1

ER -