Essay by Daniel Q. Posin
The Coase Theorem holds that in the absence of transaction costs, the change in the liability rule does not affect the allocation of resources. In an earlier article, The Coase Theorem: Through a Glass Darkly, 61 Tennessee Law Review 797-868 (1994), the author demonstrated the error of the Coase Theorem. The present Essay applies those ideas to the issues surrounding silicone breast implant litigation and the problems the author's father-in-law has had with obtaining a silicone prosthesis for his thumb. The Coase Theorem is wrong because it is founded on marginal analysis whereas, as explained in this Essay, the relevant analysis is rate of return. The author shows that even in the absence of transaction costs, a shift in legal liability does change the allocation of resources. As an example of this, between the time the author's father-in-law first obtained a silicone prosthetic device for his injured thumb in 1985 and the time he needed a replacement device in 1995, legal liability for silicone devices had shifted markedly against the manufacturers of all such devices. As a result, contrary to the Coase Theorem, allocation of resources did change. The author's father-in-law was unable to get the same silicone device in 1995 that he was able to get in 1985.
About the Author
Daniel Q. Posin. Professor of Law, Tulane Law School.
Citation
70 Tul. L. Rev. 2565 (1996)