  The Coase Theorem has a central place in the theory of environmental
economics and regulation. But its applicability for solving real-world
externality problems remains debated. In this paper, we first place this
seminal contribution in its historical context. We then survey the experimental
literature that has tested the importance of the many, often tacit assumptions
in the Coase Theorem in the laboratory. We discuss a selection of applications
of the Coase Theorem to actual environmental problems, distinguishing between
situations in which the polluter or the pollutee pays. While limited in scope,
Coasian bargaining over externalities offers a pragmatic solution to problems
that are difficult to solve in any other way.
