Ronald H. Coase
Pre-reading
Ronald H. Coase (1910-2013) was a British-U.S. economist. He received his doctorate from the London School of Economics and taught principally there. He settled at the University of Chicago in 1964 and became the editor of The Journal of Law and Economics. He was a pioneer in the field of transaction cost economics, and studied the ways in which legal rules affect economic behavior. He believed economists should study real markets and not theoretical ones, and legal scholars should focus on the importance of an efficient marketplace and on negotiation rather than litigation.
Coase is often referred to as the “father” of reform in the policy for allocation of the electromagnetic spectrum, based on his article The Federal Communications Commission (1959), where he criticizes spectrum licensing, suggesting property rights as a more efficient method of allocating spectrum to users. In his The Nature of the Firm (1937), Coase introduces the concept of transaction costs to explain the nature and limits of firms. In The Problem of Social Cost (1960), he suggests that well-defined property rights could overcome the problems of externalities. He won the 1991 Nobel Memorial Prize in Economic Sciences.
Additionally, Coase’s transaction costs approach is currently influential in modern organizational economics, where it was reintroduced by Oliver E. Williamson.
The following passage is from Coase’s Nobel prize lecture (1991) The Institutional Structure of Production.
Prompts for Your Reading
1.What kind of book is The Wealth of Nations? Learn about the book and its author Adam Smith.
2.According to Adam Smith, the economy should be coordinated by the “invisible hand”, rather than the “visible hand”, for the efficiency and beneficial results. What does the two “hands” refer to respectively? In this passage, what is Coase’s view?
3.In what way do you find Coase’s argument different from orthodox economics? What are the limitations of modern economics?