Coase theorem

Can strangers fix a broken window without calling the cops?

Imagine a neighbor accidentally breaks your window, and there's no immediate way to get them to pay for the repairs.

If both parties can talk it out without trouble, they'll agree on a fair price for the window. This is the Coase theorem in action.

Example

You and your neighbor agree to split the cost of the window, say $100, because you both prefer to keep your friendship over arguing.

Remember this

The Coase theorem shows that with low costs to talk it out, people can solve problems themselves.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

Related concepts

CAP theorem

Can you always access your favorite online photo album from anywhere?

Laissez-faire

Laissez-faire economics advocates minimal government intervention in markets

the Modigliani-Miller theorem says

Does how you pay for a car matter if you can always borrow money?

Quantity theory of money

MV = PY equation

Outline of economics

Why do we sometimes struggle to share resources fairly?

Labor theory of value

Value = Labor required for production

Educational content, not financial advice.

Swipe through 100 ML concepts daily