The Elgar Companion to Ronald H. Coase
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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.
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Chapter 21: Ronald Coase and the legal–economic nexus

Steven G. Medema


There is no small amount of irony in the fact that Ronald Coase, who is best known among economists and legal scholars for demonstrating that law does not matter (at least so long as one has it), spent his career attempting to show economists why, in fact, the particulars of the legal environment do matter. The legal–economic nexus – the reality that the economy is a function of the law and the law is a function of the economy – permeates Coase’s life’s work. His two best-known works, ‘The Nature of the Firm’ (1937) and ‘The Problem of Social Cost’ (1960), are grounded in precisely this insight, one that is both central and profound, yet often overlooked in modern economic analysis. But this nexus is also messy and elusive, the latter to the point that even Coase himself may have failed to realize its full implications for one of his other prominent works, ‘The Lighthouse in Economics’ (1974b). An appreciation of the legal–economic nexus, though, is not simply a message that emerges from Coase’s writings; it is also fundamental to how he went about ‘doing economics,’ to his practical methodology (Medema 1995). This is a decidedly under-appreciated aspect of Coase’s scholarship, though that should come as no surprise given the propensity of modern economists to eschew methodological discussion.

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