Great Economists Since Petty and Boisguilbert
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 102: Ronald Harry Coase (1910–2013)
In 1991, Ronald Harry Coase was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, for his introduction of transaction costs and property rights to explain the functioning of the economic system. Two articles were cited: “The nature of the firm” (Coase 1937) – seminal for recent theories of the firm – and “The problem of social cost” (1960) – seminal for the Law and Economics movement. These articles are sometimes contrasted, illustrating Coase’s political evolution from Socialism to membership of the Mont Pèlerin Society: the 1937 article, focusing on the costs of the market, can be read as defending economic planning, while the latter, from which originated the “Coase theorem”, is typically interpreted as defending a market solution to externalities. Despite their divergences, both articles illustrate the main features of Coase’s approach to economics. First, they develop a comparative institutional method, that is, they compare the production value yielded by alternative arrangements net of the costs of their operation. Second, they are based on empirical material and call for realism in the analysis, leading to the introduction of transaction costs as an explanation of the firm, and the economic role of the law, respectively. These articles were the source of a renewed interest in institutions among economists, and paved the way for the different trends of institutional economics. Coase, however, contributed to other fields of economic theory (Medema 1994; Ménard and Bertrand 2016): he is cited as being the originator of the concept of rational expectations;...