The starting point of a microeconomic analysis of comparative law must be the Coase Theorem, introduced by Ronald Coase (1960). Before his article, economists largely argued that externalities (external effects to market transactions), such as pollution, should be addressed by appropriate taxation (requiring government intervention). Coase refocused the analysis by emphasizing the role of bargaining and transaction costs in determining efficiency within a certain entitlement imposed by law. In a world of zero transaction costs and well-defined legal rules (plus a few other less important technical assumptions), a Coasian bargaining guarantees efficiency. In such a world, law is about specifying initial entitlements, guaranteeing costless enforcement and achieving redistribution (since initial entitlements do not affect efficient outcomes but do shape redistribution). However, in a world with transaction costs, different legal regimes may have varying consequences on the efficiency of outcomes. Transaction costs are the costs of making and enforcing the transaction of initial entitlements. Examples include negotiation costs and agency costs (monitoring, enforcement and avoidance).

Consider Kaldor–Hicks efficiency. In a very general way, this principle suggests that changes in legal policy are efficient if gains exceed or potentially compensate losses. Thus, after exhausting all possible modifications that satisfy the Kaldor–Hicks principle, the emerging law should maximize social welfare (i.e., aggregate wealth). However, unlike the Pareto principle, the Kaldor–Hicks approach does not claim consensual exchanges. The Pareto principle demands that no one can be made better off without making someone else worse off. Therefore, if there are Pareto improvements (making someone better without making someone else worse), social welfare has not been optimized. However, Kaldor–Hicks efficiency guarantees that social welfare is maximized, but not that everyone is in a better-off world. It shows that, under the most efficient law, the winners could potentially compensate the losers. It has been said that the Kaldor–Hicks principle is about implied consent, thus replacing actual consent under Pareto efficiency.

a) Property law and economics: Brief overview

From the viewpoint of law and economics, property law should be designed to ensure maximization of property value, both in terms of transactions and use as collateral for capital market development. Moreover, following the basic insight of Coase (1960), the establishment of adequate entitlements and the adoption of legal rules that reduce transaction costs will help in the necessary bargaining to internalize externalities