Three movies in which the Coase theorem does not seem to hold

by on April 13, 2014 at 7:39 am in Film, Uncategorized | Permalink

Le Weekend explains why the Coase theorem does not hold in the marriages of aging British whinersThe Lunchbox, in addition to having an interesting plot (imagine a lower-tech Indian “You’ve Got Mail”), is the best movie I’ve seen on the nature of Indian micro-transactions, whether in relationships or in the workplace.  Erving Goffman would be proud,  and the mention of Harvard is the funniest line I’ve heard in a movie in years.   Under the Skin, as I understood it, asks what kind of trades might be possible between us and one of Rilke’s angels, if the latter were to come down to earth.  The movie does indeed answer that question, and the underlying connection between Rilke and Islam is discussed here.  And here is a fascinating article about the most memorable actor in the movie.  Maybe the best piece you will read today.

I thought all three movies were excellent, and full of social science, though none is a movie that everyone will enjoy.

When I am watching a movie I often think “why isn’t the Coase theorem holding here?”  There are few movies — outside of sappy romantic comedies — in which the Coase theorem explains much of the plot.

Dan Cole April 13, 2014 at 8:27 am

If the “Coase theorem,” by its own terms, applies only in situations where transaction costs are zero, situations that according to Coase never exist in reality, why would you ever expect the “Coase theorem” to “hold”?

Millian April 13, 2014 at 8:58 am

You are confused between sometimes and never. If transaction costs were zero, the Coase theorem would always hold. Because they are not zero, the Coase theorem sometimes holds.

dan cole April 13, 2014 at 11:46 am

Well, one of us is confused. The “Coase theorem,” by its very terms, applies only when transacting is costless. When they are not zero, the “Coase theorem” simply does not apply. If they are never zero, as Coase maintained is the case in the real world, then by deduction the “Coase theorem” never holds in the real world. To maintain that the “Coase theorem” “sometimes” holds in real-world situations is an oxymoron.

Jonathan April 13, 2014 at 12:01 pm

The Coase Theorem does not require no transaction costs — it simply requires transaction costs which are sufficiently small relative to the potential gains. No transactions cost is a polar case in which any gain, no matter how matter how small, is potentially in reach. As to your original question, Andy gets it below. Failures cause you to ask what sort of transaction cost was high enough to block mutually beneficial trade.

LemmusLemmus April 13, 2014 at 12:20 pm

Yay! It’s another thread about what “the Coase theorem” really means!

Dan Cole April 14, 2014 at 3:58 pm

Jonathan:

Exchange requires that gains from trade exceed costs, including transaction costs. But the “Coase theorem,” even as Stigler (mis)characterized it, let alone Coase’s original (untitled) version, specifies zero transaction costs. Positive transaction costs, however small, move us from the mythical world of the “Coase theorem,” into the real world of costly transacting, where crazy stuff like legal rules, norms, and organizational structure matter to economic outcomes.

I regret, LemmusLemmus, that this has become yet another thread about what “the Coase theorem” really means. It’s unfortunate that people, including in this case Tyler Cowen, keep misapplying it.

LemmusLemmus April 15, 2014 at 2:09 am

No bother, Dan – this bolsters my trust in the stability of the world.

Stuart Buck April 13, 2014 at 9:23 am

The Coase Theorem is that absent transaction costs, people would bargain to an efficient solution; but since in fact people do not bargain to efficient solutions all that often, the world is indeed full of transaction costs; therefore it is wrong to conduct economic analysis that ignores transaction costs.

I’m not sure what it means for the Coase Theorem not to apply to a movie — are you saying that in the movie, the characters are able to bargain to efficient solutions despite the presence of transaction costs?

Andy April 13, 2014 at 9:34 am

Asking why the Coase Theorem does not apply is to focus your attention on which particular transaction costs are non-zero.

Stuart Buck April 13, 2014 at 3:01 pm

But where transaction costs are non-zero and no bargaining occurs, this is precisely the Coase Theorem itself, not the absence of the Coase Theorem. The whole point of the Coase Theorem is that transaction costs DO occur and that economists who ignore them are merely doing “imaginary” work about “an economic system that doesn’t exist” (to quote a Coase interview).

martin April 13, 2014 at 9:45 am

Can’t speak to Coase but loved both Le Weekend and Lunchbox. Suggest Tyler might also like The Rocket, if he can find it. Assuming Creatures of the Southern Wild earned his approval.

Prior Probability April 13, 2014 at 10:16 am

By the way, it’s not just the movies … the Coase theorem does not seem to hold in the real world as well (even when TC’s are low), like here for example: http://priorprobability.com/2014/04/12/coase-theorem-fail/

Dave April 13, 2014 at 10:46 am

On this blog, it’s easy to misunderstand the phrase “when TC’s are low”.

ummm April 13, 2014 at 1:48 pm

link doesn’t work

Prior Probability April 13, 2014 at 2:52 pm
Anon. April 13, 2014 at 10:21 am

I thought Le Weekend was a lazy Before Sunrise Trilogy clone…good performances, but it feel apart in the final act.

Really hyped for Under the Skin though.

Brian April 13, 2014 at 10:55 am

Do you have any recommendations on what is the best movie theater in the DMV?

Robert Simmons April 13, 2014 at 1:07 pm

Tyler, I know this request goes against every bone in your body, but could you possibly make your posts less explicit, and more vague? I just feel like way too often I can guess at what you mean, and that’s really disappointing.

Bruce Hayward April 13, 2014 at 6:17 pm

Tyler: Can you please give an example of a case in movies where the Coase theorem DOES hold? This would help me to better understand what you mean when you say that those 3 movies violate the Coase theorem.

Tyler Cowen April 13, 2014 at 6:32 pm

*Sleepless in Seattle*, albeit with a lag.

Urso April 14, 2014 at 9:56 am

Romantic comedies tend to vastly understate the transaction costs involved in breaking current marriages/engagements. Has the final scene of the Graduate ever occurred in real life, anywhere, in the history of mankind? And the Graduate is in the top 5% of realism of films in that genre.

John Jackson April 14, 2014 at 9:20 am

Is there any way to track when independant movies will be released in flyover states (like Oklahoma?) It is very frustrating to hear reviews from ‘the coasts’ but not have any way to watch or even track when they are coming to a theater near me. Can I be the only one wanting a service like this “Alert me when x movie is available in my area” ?

Thanks!

Flannery Bro'Connor April 14, 2014 at 12:37 pm

These movies were “full of social science”? They showed graduate assistants conducting research and professors reviewing articles? Scintillating . . .

freethinker April 15, 2014 at 2:30 am

I wonder if the theorem holds in Shakespeare’s plays . Only Tyler can tell us

Laurie Mann April 20, 2014 at 3:08 pm

Chose to see Le-Weekend partially because we’re close in age to the protagonists and we love both Jim Broadbent and Lindsay Duncan. The first half or so, was pretty good, but the second half…the script loses any credibility the first half might have created. Ultimately, a disappointment.

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