This LSE-trained member of the Chicago School is best known for two particular contributions to economic theory. In Coase’s work on the nature of the firm (1937), he argued that firms should be conceived as entities endogenous to the economic system and whose existence is justified only in the presence of transactions costs to production. Firms and other economic organizations and institutions, in effects, exist because agents find it a useful manner of minimizing transactions costs.
His second piece presented the famous Coase Theorem (1960) to the world. Contrary to Arthur Cecil Pigou’s theory that only governments, by means of taxes and subsidies, can ‘internalize’ externalities in economic exchange or production, Coase argued that, when one considers opportunity cost in its full meaning, no such devices are necessary: private losers and winners in such cases can ‘internalize’ these externalities themselves through negotiation and that the result will be identical regardless of which party has rights of ownership over the cause of the externality. In short, the manner in which a property right is initially assigned will not affect the efficiency of resource allocation. The only exception, Coase granted, is when there are transactions costs to negotiation.
These two theorems have found wide application throughout economics – and also law, sociology and political science (particularly of the Chicago variety) and launching the whole field of ‘New Institutional Economics’ – thereby making Ronald Coase one of the leading ‘imperialists’ on behalf of economics into other disciplines.
It was on the strength of these theorems that Ronald H. Coase won the Nobel prize in 1991.
Major Works of Ronald H. Coase
– The Nature of the Firm, 1937, Economica
– The Marginal Cost Controversy, 1946, Economica
– British Broadcasting: A study of monopoly, 1950
– The Problem os Social Cost, 1960, Journal of Law and Economics
– Durability and Monopoly, 1972, Journal of Law and Economics
– The Lighthouse in Economics, 1974, Journal of Law and Economics
– Marshall on Method, 1975, Journal of Law and Economics
– The Wealth of Nations, 1977, Economic Inquiry
– Economics and Contiguous Disciplines, 1978, Journal of Legal Studies
– The New Instittuional Economics, 1984, Journal of Institutional and Theoretical Economics
– The Firm, the Market and the Law, 1988
– The Institutional Structure of Production, 1992, AER
– The Institutional Structure of Production, 1993, in Williamson, editor, Nature of the Firm