Coase Goes to China… Literally

Back in 1937 Ronald Coase asked a question fundamental to the economics of organizations — why are there firms?  Then in 1960 he pointed out that externalities stem from the reciprocity of the relationship between harmer and harmee, and that the failure to negotiate and enforce contracts is fundamental to the persistence of “externalities.”  As he says in his essay in “The Nature of the Firm: Influence“:

Transaction costs were used in the one case to show that if they are not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose (62). 

For these seminal contributions he picked up the Nobel Prize in Economics in 1991 and shortly thereafter helped found — along with Douglass North — the International Society for the New Institutional Economics.

Now, in 2011, he asks the questions, how and why did China go capitalist?  And here comes the book later this month.

China’s road to capitalism was forged by two movements. One was orchestrated by Beijing; its self-proclaimed goal being to turn China into a “modern, powerful socialist country.” The other, more important, one was the gross product of what we like to call “marginal revolutions.” It involved a concatenation of grass-roots movements and local initiatives.

Here’s some more.

There’s a lot of New Institutional Economics work on China, by some very heavy hitters.