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Ronald H. Coase, Nobel Laureate who Devised Coase Theorem, dies at 102
September 2, 2013 7:53 PM   Subscribe

Ronald Coase, the author of two of the most influential articles in economics died September 2 at the age of 102. In the 1961, in an article entitled "The Problem of Social Cost," he came up with the now famous "Coase Theorem" which is often used as the starting point of thinking about transaction costs and the necessity of certain rules and regulations when these costs are too high for individual agents to bear by themselves. Coase's work led to the development of various fields of research in economics and law. New Institutional economics (Oliver Williamson), Social Choice Theory (Duncan Black) and the Law and Economics movement in legal studies.
posted by RapcityinBlue (20 comments total) 20 users marked this as a favorite

 
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posted by Cash4Lead at 8:11 PM on September 2, 2013


Delete this post and I'll give you $20. Alternatively, you can give me $20 to compensate me for its existence.
posted by miyabo at 8:21 PM on September 2, 2013 [7 favorites]


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I have devoted an unreasonable amount of time in my life to explaining the Coase Theorem to people who should have already known all about it.
posted by The World Famous at 8:42 PM on September 2, 2013 [2 favorites]


Damn. He was a hell of a mind, still writing and researching even in the last year.
posted by anotherpanacea at 9:11 PM on September 2, 2013


"Saving Economics from the Economists" for instance!
posted by anotherpanacea at 9:12 PM on September 2, 2013 [3 favorites]


Coase, Pohl, Heaney and Frost? What a miserable few days this has been.
posted by bearwife at 9:25 PM on September 2, 2013 [1 favorite]


A different Duncan Black, known more for his liberal blogging than his earlier career as an economics professor, points out that Coase himself was trying to use the theorem bearing his name to highlight that transaction costs actually do matter in the real world. Economist Dierdre McCloskey discusses the way Coase's work has been twisted to fit within a conservative ideological framework in Other Things Equal: The So-Called Coase Theorem:
I should report my long-standing conviction that "Coase's theorem" is not the point of Coase's article in 1960 (see McCloskey 1985, 335-340). Coase's article was not meant to show that we live already in the best of all possible worlds (as Stigler was inclined to assume in this and other cases) but on the contrary that if we did there would of course be no need for policy; and that in fact, as Coase argued also in the 1937 article, transaction costs push our world unpredictably far from the blackboard optimum [thus second best]. But I have given up hope of persuading any other economist of this interpretation, since the only economist who shares it is R. H. Coase (Coase 1988a, pp. 15, 174), and we know how unpersuasive he has been [I would add now "and a bare dozen other economists, equally unpersuasive"]. Coase's actual contribution to economics has been to make a point he made in 1937 about some of Kaldor's early writing: Kaldor assumes "all relevant prices" are known, "but this is clearly not true of the real world" (Coase 1937 [1988a], p. 38n18; [compare the critique of socialism by Mises a decade earlier]). The misunderstanding of the Coase theorem arises from economists thinking that Coase is trying, like them, to flee the world. [McCloskey 1993, footnote 2]
posted by tonycpsu at 9:35 PM on September 2, 2013 [9 favorites]


/me pours one out for the theory of the firm.

The urge to ask as simple a question as "Why are there firms? If you think about it, there kinda shouldn't be..." is still the foundation of neoinstitutional work in polisci as well as econ.
posted by ROU_Xenophobe at 10:14 PM on September 2, 2013 [3 favorites]




But I have given up hope of persuading any other economist of this interpretation, since the only economist who shares it is R. H. Coase

That's a pretty sick burn right there.
posted by atrazine at 1:00 AM on September 3, 2013


The lack of publicity about his death was thoroughly disappointing. Gareth Bale, Gareth Bale, Gareth Bale.
posted by ersatz at 4:22 AM on September 3, 2013


Great post.

Coase completed his last book last year, at the age of 101.

Here's a link to his Nobel Prize lecture from 1991.

Yes, the prize in economics is the Riksbank Prize in Memory of Alfred Nobel and not technically the Nobel prize but that's a pain to use in a sentence.
posted by dismas at 5:15 AM on September 3, 2013


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posted by humanfont at 5:26 AM on September 3, 2013


There's so much obvious work in law & economics, and I often feel like the field's boosters and pioneers since the '60s are not very impressive thinkers. Look at the pioneering work of Gary Becker, for which he received the Nobel in 1992: the "crime and punishment" paper seems like a totally obvious analysis. If you analyze punishments as prices, that is simply what you will get. The famous paper on discrimination is even more obvious, rote even. Judge Posner, I think, is kind of a genius, but a somewhat boring kind of genius. He's sort of a turbocharged Gary Becker: lots of good work, but few deep insights.

Coase was different. Coarse had two(!!) mind-opening big ideas that no one else was ready to come up with, which he published in two short, lucid and readable articles: "The Nature of the Firm" and "The Problem of Social Cost." The second one is a little better known, I think, but the first has been a real sleeper revelation for me, in helping me understand how the world is organized, and how it has been changed by technologies that were not even dreams when the article was written. He will be remembered.
posted by grobstein at 6:35 AM on September 3, 2013 [1 favorite]


To expand on my previous comment and agree with the issues raised by tonycpsu above, I heartily agree that the whole point of the Coase Theorem is in the assumptions. Particularly in the context of economic theory of law and policymaking, Coase's strongest point is that efficiency and optimal outcomes can only be achieved or even approached where the law - whether through statute, court proceedings, or merely the pragmatic operations of the law in the real world - compensate for the absence of theorem's assumptions in the real world. To those who quite rationally respond to the theorem (and Chicago school economic theory in general) by complaining that the assumptions aren't true in the real world, I respond that that's the point: If the assumptions are true, then the theorem will work. If you want to achieve the outcomes predicted by the theorem, you have to construct a legal and policy framework that will overcome the absence of the assumptions.

Those who advocate for "free markets" without proposing regulation to compensate for the existence of transaction costs, imperfect information, irrational decisionmaking by market participants, and externalities simply do not get it.
posted by The World Famous at 9:31 AM on September 3, 2013 [2 favorites]


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posted by rider at 10:58 AM on September 3, 2013


Point of order: there is officially no Nobel economics prize; the prize is given by the central bank of Sweden.

The Nobel prizes are given for science. The economics prize is given for voodoo.
posted by Twang at 11:02 AM on September 3, 2013


But if everyone had perfect information, zero transaction costs, and no exernalities, there would be a Nobel economics prize, certainly.
posted by The World Famous at 12:12 PM on September 3, 2013 [1 favorite]


Point of order: there is officially no Nobel economics prize; the prize is given by the central bank of Sweden.

I've noted this before, but which would you rather have:

(1) A check from the central bank of Sweden from, originally, the normal taxation and banking operations of the Riksbank

or

(2) A check originally from the Nobel family as an attempt at expiation for the millions of people murdered using weapons and ammunition made by Alfred and the family.

I'd pick column 1, myself. Option 2 is like getting a big prize from King Leopold for being ever so smart.
posted by ROU_Xenophobe at 12:44 PM on September 3, 2013 [1 favorite]


I'd rather take money from the wealthy warmongers than from the taxpayers. Why would you pick column 1?
posted by The World Famous at 12:55 PM on September 3, 2013


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