Coase Theorem, Property Rights, Transaction Costs, Distributive Effects, China’s Economic Experience

In post-Mao China Coase’s theorem unexpectedly worked in the most fluid of situations. Property rights were in the making while the economy was moving towards capitalism. Information and communication had to overcome huge political obstacles. Negative free riding was transformed into positive imitation. Redistribution often had to take the form of bribes to side-step senseless regulation. Improbably China was taking the path described by Buchanan in “The Irrelevance of Transaction Costs” (1984).As Ronald Coase and Ning Wang noted in How China Became Capitalist (201) that “China did not first delineate property rights and then allowed market forces to allocate rights to the highest bidder”. The state continuously changed and modified those rights under the entrepreneurial pressure of local authorities, firms and individuals. Agreements were reached and contracts performed under unpropitious legal circumstances. And the resulting prosperity was so great that distributional conflicts, though not inexistent, were minimized.The experience of Chinese capitalism demands a recasting of the Coase theorem, to make it less static and more explanatory than it appears in misguided reductions, at bottom unfaithful to its spirit