Edited by Claude Ménard and Elodie Bertrand
Chapter 21: Ronald Coase and the legal–economic nexus
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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