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The Elgar Companion to Ronald H. Coase

The Elgar Companion to Ronald H. Coase

Edited by Claude Ménard and Elodie Bertrand

Ronald H. Coase was one of the most innovative and provocative economists of the twentieth century. Besides his best known papers on ‘The Nature of the Firm’ and ‘The Problem of Social Cost’, he had a major role in the development of the field of law and economics, and made numerous influential contributions to topics including public utilities, regulation and the functioning of markets. In this comprehensive Companion, 31 leading economists, social scientists and legal scholars assess the impact of his work with particular reference to the research programs initiated, the influence on policymakers, and the challenge to conventional perspectives.

Chapter 6: Coase’s contribution to contract theory

Douglas W. Allen and Yoram Barzel

Subjects: economics and finance, history of economic thought, industrial organisation, institutional economics, law and economics, law - academic, law and economics


The “Nature of the Firm” (together with Coase’s later paper, “The Problem of Social Cost”) has had an enormous influence on the development of research in the theory of organization . . . (Hart, 1988: 119) It is impossible to disagree with Hart’s assessment. Coasean ideas, not just in the papers cited by Hart, are embodied into the contract and organization literature. This influence stems in part from the fact that Coase’s theoretical framework resides within the context of mainstream economic thinking. This theoretical framework depends on the relationship between property rights and transaction costs, and because the standard neoclassical model emerges as a special case when rights are perfect, it was logical for Coase’s work to be accepted and used, compared to the work of earlier institutionalists. When combined with Coase’s yeoman methodological empiricism, it is understandable why his name will forever be attached to the economics of organization and contracts.

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