[bradleyjg]

The Coase theorem basically says that you can have any initial allocation of resources and so long as they are tradable, transaction costs are low, and a few other conditions are met, you will end up with an economically efficient outcome (i.e. those who will put the resources to the most remunerative use will end up with them).

Which isn't to say that any initial allocation will satisfy us as fair or that the outcome will satisfy us as fair, but a top down system may well end up being neither fair nor efficient.

[cbd1984]

How do we know the Coase theorem applies in this case?

[thaumasiotes]

It basically never applies; transaction costs are always sky-high. But it can still function as a sort of guide to thought, like Raymond Chen's "what if two programs had that feature". It's more useful if you think of it as saying "reality can't diverge from this goal state by more that a function of the local transaction costs, legal system, etc".