After familiarizing myself with Ronald Coase’s theory of economic efficiencies in economic externalities, I have discovered that Coase’s theorem is greatly debated amongst scholars who study law and economics. I have discovered the two schools of legal thought which are torn apart because of their opinion on the validity of Coase’s theorem. Basically, Ronald Coase declared that when there are no transaction costs, bargaining between neighbors will lead to an efficient outcome, regardless of the laws on property rights. The theorem is saying that when the transaction costs are low and somebody trespasses onto another’s property, in this case, cattle, neighbors are more likely to resolve the dispute by forgiving the trespass or by repaying the trespassed with a small reward. Since he has made it clear that this theory works when transaction costs are low, I agree absolutely with Ronald Coase. Ronald Coase’s theory that, when transaction costs are minimal, bargaining powers of people will result in an efficient outcome is correct.

In Robert Ellickson’s article, Of Coase and Cattle, he mentions a story about Frank Ellis and Larry Brennan. Larry Brennan lost approximately seven tons of baled hay to Frank Ellis’ cattle while they were roaming in open range. Brennan could have taken Ellis to court to reclaim a monetary value of approximately $500, but instead, he decided to notify Ellis of his cows wrongdoing. Ellis offered to give Brennan some of the hay that was baled in his barn, but Brennan declined the offer. Instead, Brennan knew that it would be in his favor in the future to have Ellis indebted to him, incase a situation arises where Brennan would need a favor performed. Since the transaction costs were pretty low and there was close proximity between Brennan and Ellis, the situation was resolved with efficiency. This is pretty common in rural areas since people of the small townships and farming communities live by the motto “live and let live.” The people who repeat this motto know they should put up with small imbalances in their accounts because they perceive that their future interactions will provide adequate opportunities for settling old scores.

The fourth chapter of “Economic Foundations of Law,” by Stephen Spurr, has a great analogy of the Coase theorem that relates it to a Pareto-optimal efficient outcome. The example describes a conflict between a cattle rancher and a farmer who have adjoining properties. Since they have adjoining properties in an open range system, the cattle owned by the rancher are more than likely going to wander around within the farmer’s property—since it is almost impossible to tell which direction or how far cattle are going to migrate in the open range. With the herd of cattle grazing and walking around on the farmer’s crops, the farmer sustains a loss. However, the Coase theorem would make it simple for the farmer and rancher to come to terms and decide a remedy for the farmer’s loss. Stephen Spurr says, on page 67, “The socially optimal number of steers is the number that maximizes total social benefit minus total social cost, that is, the profit to the cattle rancher minus the damage to the farmer.” Essentially, this is saying that damage could be controlled by controlling the amount of head are in a herd of cattle which will in turn reduce transactions costs by reducing the amount the farmer will lose in damaged crops.

From the pair of examples above, it is fairly easy to understand the Coase theorem. However, in Of Coase and Cattle: Dispute Resolution Among Neighbors in Shasta County, lies a vast story about a dispute between Frank Ellis, a new cattle rancher, and Doug Heinz, another cattle rancher. Since Frank Ellis was in an open range ordinance, he let his huge herd roam free. Ellis’ herd consisted of thousands of head of cattle and his property was approximately 15,300 acres, making it easily the largest farm in Shasta County at the time. Ellis hired a group of Mexican cowboys to take care of his handiwork, which included tending to the herd and doing whatever necessary farm tasks were required. Since his herd was situated on an open range, his cowboys “deliberately crossed the unfenced private lands of others, but also used those lands as free pasture,” as qu