Environmental applications of the Coase Theorem

Tatyana Deryugina, Frances Moore, Richard S.J. Tol

Research output: Contribution to journalReview articlepeer-review


The Coase Theorem has a central place in the theory of environmental economics and regulation. Its applicability for solving real-world externality problems remains debated. We first place this seminal contribution in its historical context. We then survey the experimental literature that has tested the importance of the many, often tacit assumptions in the Coase Theorem. We discuss a selection of applications of the Coase Theorem to actual environmental problems, distinguishing between situations in which the polluter or the pollutee pays. Most substantive examples of Coase-like bargaining involve more than two parties. It is not clear whether the outcomes of these bargains were Pareto optimal rather than merely Pareto improving. While limited in scope, Coasian bargaining over externalities offers a pragmatic solution to problems that are difficult to solve in any other way.

Original languageEnglish (US)
Pages (from-to)81-88
Number of pages8
JournalEnvironmental Science and Policy
StatePublished - Jun 2021


  • Bargaining
  • Coase Theorem
  • Environment
  • Externalities
  • Property rights

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Management, Monitoring, Policy and Law


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