Editing Coase theorem (section)

====Transaction costs====
Ronald Coase's work itself emphasized a problem in applying the Coase theorem: transactions are "often extremely costly, sufficiently costly at any rate to prevent many transactions that would be carried out in a world in which the pricing system worked without cost."{{sfnp|Coase|1960|p=15}} This isn't a criticism of the theorem itself, since the theorem considers only those situations in which there are no transaction costs. Instead, it is an objection to [[Applied economics|applications of the theorem]] that neglect this crucial assumption.

So, a key criticism is that the theorem is almost always inapplicable in economic reality, because real-world transaction costs are rarely low enough to allow for efficient bargaining. (That was the conclusion of Coase's original paper, making him the first 'critic' of using the theorem as a practical solution.) [[Neo-Keynesian economics|Neo-Keynesian]] economist [[James Meade]] argued that even in a simple case of a beekeeper's bees pollinating a nearby farmer's crops, Coasean bargaining is inefficient (though beekeepers and farmers do make contracts and have for some time).<ref name="Johnson">{{Cite journal|year=1973|title=Meade, Bees and Externalities|journal=The Journal of Law and Economics|volume=16|issue=1|pages=35–52|doi=10.1086/466754|author=Johnson, David B.|s2cid=154681709}}</ref>

[[Chicago school of economics|Chicago school]] economist [[David D. Friedman]] has argued that the fact that an "economist as distinguished as Meade assumed an externality problem was insoluble save for government intervention suggests...the range of problems to which the Coasean solution is relevant may be greater than many would at first guess."<ref name="Friedman">{{Cite book|year=2000|title=Law's Order|publisher=Princeton Paperbacks|pages=41–42|last=Friedman |first=David D. |isbn=9781400823475}}</ref>

In many cases of externalities, the parties might be a single large factory versus a thousand landowners nearby. In such situations, say the critics,  the transaction costs rise extraordinarily high due to the fundamental difficulties in bargaining with a large number of individuals.

However, transaction costs are not only a barrier for situations with large numbers of involved parties. Even in the simplest of situations, with only two individuals, social costs can increase transaction costs to be unreasonably high so as to invalidate the applicability of Coasean bargaining. As economist [[Jonathan Gruber (economist)|Jonathan Gruber]] described in 2016,<ref name =gruber>{{Cite book|title=Public Finance and Public Policy|last=Gruber|first=Jonathan|publisher=Worth Publishers|year=2016|isbn=978-1464143335|location=New York}}</ref> there are strong social norms that often prevent people from bargaining in most day-to-day situations. Whether it is the awkwardness of the exchange or the fear of greatly under-valuing someone else's property rights, transaction costs can still be quite high even in the most basic interactions that could make use of the Coase Theorem.