The intellectual founder of transaction cost economics, Ronald Coase, turns 100 today. Coase is best known for two papers: “The Nature of the Firm” in 1937 and “The Problem of Social Cost” in 1960. Both are about the importance of transaction costs. The former shows that without transaction costs the firm doesn’t matter, and this serves as the starting point for Econ 450. As The Economist‘s Schumpeter blog points out:
Today most people live in a market economy, and central planning is remembered as the greatest economic disaster of the 20th century. Yet most people also spend their working lives in centrally planned bureaucracies called firms.
Certainly, this has had a profound impact on organizational theory and industrial organization.
The latter paper shows that without transaction costs the law doesn’t matter, the foundation of the so-called Coase Theorem. , and this idea figures prominently in Econ 280. Indeed, the latter is one of the most heavily cited papers in all of social sciences, and is the centerpiece of the law & economics movement.
Coase also wrote the very provocative“The Market for Goods and the Market for Ideas,” arguing that the case for product regulation is no stronger than the case for regulating ideas — a good discussion starter to say the least.
For a pretty good portrait of Coasian ideas, check out his interview with Reason Magazine from back in the day.