2015] FRACTURED MARKETS AND LEGAL INSTITUTIONS 619
of growing on her land and with her existing equipment. Once she has
planted beans, however, the market she faces is typically reduced to that
product, although it may be salable over a large geographic range. After the
beans have been delivered to a particular store, the market for them may
consist only of the subset of people who shop there. Each further stage in the
process fractures the market further and leaves people with a smaller range
of choices, provided that the costs of reversing the decision are greater than
the payoffs from switching.
To the extent reversal is costly, making a decision earlier saves more
resources than making it later. Indeed, the prospective farmer faces her
largest range of choices before she has settled on farming as a career at all. At
that time even her purchase of land and equipment is one of many options.
In addition, the decisions to enter farming, to grow beans in a particular year,
or to sell them to a particular store may have been mistakes. If so, they are
corrected more cheaply earlier rather than later.
In The Problem of Social Cost, Ronald Coase identified the costs of
bargaining as the main impediment to the free and efficient flow of
resources.1 As a result, Coase argued throughout his career that transaction
costs make a legal system important to social ordering.2 Coase wrote about
several common law disputes among neighbors whose economic activities
conflicted with one another. One of them was Sturges v. Bridgman, a 19th-
century British nuisance case between the two occupants of a duplex building
sharing a party wall.3 Octavius Sturges was a London pediatrician who
specialized in childrens’ respiratory diseases, such as pneumonia. Frederick
Horatio Bridgman was a confectioner to Queen Victoria, whose process for
making sweets required him to use a mechanical mortar and pestle to
pulverize substances such as chocol ate.4 The nuisance dispute arose when
Sturges complained that Bridgman’s machine, with its repetitive pounding,
made it impossible for Sturges to use his stethoscope to diagnose patients.
Coase argued that if high transaction costs did not interfere, private
bargaining would provide a solution to the problem of conflicting uses, which
he characterized as “efficient.” By that he meant that the right to continue
would be given to the person who valued it most.5 For example, if the
pediatrician valued the right to relative silence at £100, while the confectioner
valued the right to conduct his business at £60, the efficient solution would
preserve the pediatrician’s £100 value over the confectioner’s £60 value. If no
1. R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1, 15 (1960).
2. See, e.g., R.H. Coase, Professor, Univ. Chi. Law Sch., The Institutional Structure of
Production, Prize Lecture for the Alfred Nobel Memorial Prize in Econ omic Sciences (Dec. 9,
1991), in 82 AM. ECON. REV. 713 (1992).
3. See generally Sturges v. Bridgman, LR 11 Ch.D. 852 (1879).
4. For more on the players and the facts in Sturges v. Bridgman, see generally A.W. Brian
Simpson, Coase v. Pigou Reexamined, 25 J. LEGAL STUD. 53, 54–58 (1996).
5. Coase, supra note 1, at 16.