Interpreting suboptimal business outcomes in light of the Coase Theorem: Lessons from Sidmouth International Festival

Abstract

The management team of the world-famous Sidmouth Festival resigned in 2004, after failing to secure bad-weather underwriting worth £200,000, and amidst widespread fears that the Festival was doomed. While claims of a local economic impact of £5 million are seriously flawed, it is highly likely that the local economy did benefit by at least several times the amount of the required insurance. Failure to capture these net positive benefits is linked to ill-defined property rights, rising transaction costs, incomplete information from unreliable sources, and actual or feared free riding. These conditions prevented the type of efficient bargaining solution in the face of externalities envisioned by the Coase Theorem. Practically all of the problems preventing the ideal Coasean solution could have been addressed by granting key stakeholders' individual ownership rights. Hence, while the Coase solution was not applicable, the Theorem's predictions (or its corollary's predictions) were confirmed. © 2009 Elsevier Ltd. All rights reserved.