The Coase problem: a transformation of the usual utility function

Abstract

Given that demand for durable goods is not constant over time, this article proposes a transformation of the utility function which accounts for discontinuous time and for the effect of different levels of income on the utility of buying. As a result, the original Coase paradox will collapse. The smaller the difference between the disposition of consumers with high level income and those with low level income to pay, the greater the probability of marginal cost pricing in the present.

Acknowledgements

I gratefully acknowledge Carlos Osório (UBI), António Mendonça (ISEG), Ricardo Chaves Lima (UFP), Tiago Sequeira (UNL and UBI), and José Fuinhas (UBI), and Maria Miguel (ISCE).