Editing Coase theorem (section)

==Application in United States contract and tort law==
The Coase Theorem has been used by [[jurists]] and legal scholars in the analysis and resolution of disputes involving both [[contract law]] and [[tort law]].

In [[contract law]], the Coase theorem is often used as a method to evaluate the relative power of the parties during the negotiation and acceptance of a traditional or classical bargained-for contract.

In modern [[tort law]], application of economic analysis to assign liability for damages was popularized by Judge [[Learned Hand]] of the [[Second Circuit Court of Appeals]] in his decision, ''[[United States v. Carroll Towing Co.]]'' 159 F.2d 169 (2d. Cir. 1947). Judge Hand's holding resolved simply that [[legal liability|liability]] could be determined by applying the formula of <math>B < PL</math>, where <math>B</math> is the burden (economic or otherwise) of adequate protection against foreseeable damages, <math>P</math> is the probability of damage (or loss) occurring and <math>L</math> is the gravity of the resulting injury (loss). This decision flung open the doors of economic analysis in [[tort]] cases, thanks in no small part to Judge Hand's popularity among legal scholars.

In resultant scholarship using economic models of analysis, prominently including the Coase theorem, theoretical models demonstrated that, when transaction costs are minimized or nonexistent, the legal appropriation of liability diminishes in importance or disappears completely. In other words, parties will arrive at an economically efficient solution that may ignore the legal framework in place.