<p>The key is about ownership of the <em>right</em> to broadcast through a certain frequency. If station A  has the right to broadcast and B interferes in the way you described, then instead of paying B not to do so, A would simply bring B to court. </p>

<p>However, if B is a more profitable station but cannot realize such profit unless it uses the channel that A owns, then B would have to pay A to relinquish its right to use the channel. The amount paid would have to be at least what A can make were it to use the channel itself. Since B is more profitable, it can afford to say such an amount while while retaining nonnegative profit for itself. </p>

CC BY-SA 3.0
2018-03-19T17:40:58.853Z
2018-03-19T17:40:58.853Z
Herr K.
<p>The <a href="https://en.wikipedia.org/wiki/Coase_theorem" rel="nofollow noreferrer">wikipedia page</a> has a good summary:</p>

<blockquote>
  <p>Coase developed his theorem when considering the regulation of radio frequencies. Competing radio stations could use the same frequencies and would therefore interfere with each other's broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter which station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use.</p>
</blockquote>

<p>This makes sense if you take the view that everyone broadcasting is only doing so to perform a legitimate service. However, if the practice of paying people not to interfere was prevalent, it would be very profitable to simply buy the most powerful transmitter available and set it up next to the most profitable radio station around and wait to get paid off. It's almost like saying that a gangster who demands protection money is simply operating under the Coase theorem and bargaining with shop owners who would like avoid the negative externalities of bricks thrown through their windows.</p>

<p>Does Coase somehow analyze this in his essay, and I'm missing it, or am I missing something else more fundamental that makes this irrelevant?</p>

CC BY-SA 3.0
2018-03-18T23:58:16.327Z
If you take a look at Coase's paper, there is no "theorem." So it makes no sense to discuss the assumptions of this non-existing theorem. The term "Coase theorem" was an invention of George Stigler, an economist who was never in the business of proving theorems. I guess that is okay for a self-described preacher.
Michael Greinecker
CC BY-SA 3.0
2018-03-20T12:43:18.360Z
The Wikipedia statement about interference between radio stations not mattering provided property rights are well defined does not seem to be a correct reflection of what Coase said in his [1959 paper](http://web.ntpu.edu.tw/~guan/courses/Coase59.pdf). As I read pp 27-9 he is saying that a) given property rights and in favourable circumstances interference can be addressed via the market, without regulation; b) where regulation is needed (eg where there are a large number of parties), the objective should be to maximise output, not to reduce interference to nil.
Adam Bailey
<coasian-bargaining>
Does the Coase Theorem account for malicious externalities?
Jehan
# Does the Coase Theorem account for malicious externalities?

(Asked by: username_0 on 2018-03-18)

The [wikipedia page](https://en.wikipedia.org/wiki/Coase_theorem) has a good summary:

> Coase developed his theorem when considering the regulation of radio frequencies. Competing radio stations could use the same frequencies and would therefore interfere with each other's broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter which station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use.

This makes sense if you take the view that everyone broadcasting is only doing so to perform a legitimate service. However, if the practice of paying people not to interfere was prevalent, it would be very profitable to simply buy the most powerful transmitter available and set it up next to the most profitable radio station around and wait to get paid off. It's almost like saying that a gangster who demands protection money is simply operating under the Coase theorem and bargaining with shop owners who would like avoid the negative externalities of bricks thrown through their windows.

Does Coase somehow analyze this in his essay, and I'm missing it, or am I missing something else more fundamental that makes this irrelevant?

**Tags:** coasian-bargaining

> **Comments:**
> **username_1**: If you take a look at Coase's paper, there is no "theorem." So it makes no sense to discuss the assumptions of this non-existing theorem. The term "Coase theorem" was an invention of George Stigler, an economist who was never in the business of proving theorems. I guess that is okay for a self-described preacher.  
> **username_2**: The Wikipedia statement about interference between radio stations not mattering provided property rights are well defined does not seem to be a correct reflection of what Coase said in his [1959 paper](http://web.ntpu.edu.tw/~guan/courses/Coase59.pdf). As I read pp 27-9 he is saying that a) given property rights and in favourable circumstances interference can be addressed via the market, without regulation; b) where regulation is needed (eg where there are a large number of parties), the objective should be to maximise output, not to reduce interference to nil.  

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## 1 answers

### Answer by username_3 on 2018-03-19. Score: 0

The key is about ownership of the *right* to broadcast through a certain frequency. If station A has the right to broadcast and B interferes in the way you described, then instead of paying B not to do so, A would simply bring B to court.

However, if B is a more profitable station but cannot realize such profit unless it uses the channel that A owns, then B would have to pay A to relinquish its right to use the channel. The amount paid would have to be at least what A can make were it to use the channel itself. Since B is more profitable, it can afford to say such an amount while while retaining nonnegative profit for itself.


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