Ronald Coase

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Ronald Coase.

Ronald Harry Coase (December 29, 1910September 2, 2013) was a British economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School.


  • I can't remember [of a good regulation]. Regulation of transport, regulation of agriculture—agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.
  • If economists wished to study the horse, they wouldn't go and look at horses. They'd sit in their studies and say to themselves, "what would I do if I were a horse?"
    • R.H. Coase in speech to the "International Society of New Institutional Economics" the 17 September 1999, Washington DC. He claims he was quoting fellow economist Ely Devons which reportedly said this in a meeting

The Firm, the Market and the Law (1988)[edit]

The Firm, the Market, and the Law[edit]

  • In mainstream economic theory, the firm and the market are, for the most part, assumed to exist and are not themselves the subject of investigation. One result has been that the crucial role of the law in determining the activities carried out by the firm and in the market has been largely ignored.
  • The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. This determines what the firm buys, produces, and sells. As the concept of transaction costs is not usually used by economists, it is not surprising that an approach which incorporates it will find some difficulty in getting itself accepted. We can best understand this attitude if we consider not the firm but the market.
  • Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded.

The Nature of the Firm (1937)[edit]

Ronald Coase "The nature of the firm." Economica 4.16 (1937): 386-405.

  • Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-co-ordinator, who directs production.
  • It is clear that these are alternative methods of co-ordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?
  • A firm consist of the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur... As a firm gets larger, there may be decreasing returns to the entrepreneur function, that is, the costs of organizing additional transactions within the firm may rise.

The Problem of Social Cost (1960)[edit]

Orginally published in Journal of Law and Economics, Vol. 3. (Oct., 1960)

  • The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?

A remark on "The problem of social cost"[edit]

  • In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics.

Essays on Economics and Economists (1994)[edit]

"How should economists choose?" (1981)[edit]

R.H. Coase "How should economists choose?" Warren Nutter Lecture, 1981

  • But a theory is not like an airline or bus timetable. We are not interested simply in the accuracy of its predictions. A theory also serves as a base for thinking. It helps us to understand what is going on by enabling us to organize our thoughts. Faced with a choice between a theory which predicts well but gives us little insight into how the system works and one which gives us this insight but predicts badly, I would choose the latter, and I am inclined to think that most economists would do the same.
  • If you torture the data enough, nature will always confess.
    • Coase states that he said this in a talk at the University of Virginia in the early 1960s and that this saying, "in a somewhat altered form, has taken its place in the statistical literature."
      • Alternative: "If you torture the data long enough, it will confess."
        • Cited in: Gordon Tullock, "A Comment on Daniel Klein's 'A Plea to Economists Who Favor Liberty'", Eastern Economic Journal, Spring 2001.

Quotes about Coase[edit]

  • Writers after Coase have referred to the authority structure of the firm as a "visible hand" that works in combination with Smith's invisible hand. The everyday fact that employers exercise power over their employees — not news to most employees — had been a central theme in Marx's economics, but it was (and generally continues to be) overlooked by most neoclassical economists. Early in his studies Coase noted the similarity between the hierarchical organization of capitalist firms, with their reliance on command relations, and the then-existing system of centralized economic planning in the Communist countries, where production was carried out in accordance with orders from higher authorities and where market competition played little role.
    • Samuel Bowles, Richard Edwards, and Frank Roosevelt. Understanding Capitalism: Competition, Command, and Change (3rd ed., 2005), p. 85

External links[edit]

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