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The Coase Theorem

Recognizing that safety has costs, Coase and his followers think of an efficient rule as one that minimizes the sum of accident costs and prevention costs, because such a rule will, given other assumptions, subtract the least from social wealth. Note that efficiency in this sense (called “Kaldor-Hicks” efficiency) does not require that costs be allocated justly between people. Justice, from the economists’ perspective, is a separate ideal. Some economists (not all) have argued that justice is a confused, contestable idea, and that society would be better off if tort rules were fashioned solely to advance efficiency.