Coase, Demsetz, And the Unending Externality Debate (Ronald Coase, Harold Demsetz‪)‬

Economists, trained in the study of markets, learn early of various problems grouped under the heading of "market failure"--situations that, at least potentially, could justify government intervention to solve them. Cartels and monopolies, for example, are thought by many to require government antitrust action; optimal production of public goods like national defense or national highways likewise are frequently said to necessitate government intervention in otherwise private markets. Almost certainly, however, externalities (or "social costs") are perceived as the greatest market failure problems. (1) Harold Demsetz (2003: 283) (2) recently described the fundamental economic issue: