05 Sep 2013

More Reflections on Ronald Coase

Economics 12 Comments

Since the transaction costs are so low, why not send you to everything I’ve seen so far:

==> David Gordon talks about Rothbard’s relation to Coase.

==> Robert Higgs gives his recollections.

==> Here’s David R. Henderson.

==> And finally, here’s Steve Landsburg.

For my own thoughts, I think Coase’s famous article “On Social Cost” is a bear to read. I almost don’t even want to assign any of it when teaching that stuff to non-economists, thinking it’s easier just to start from scratch with my own numerical examples etc. You couldn’t possibly hand that article to someone who had no idea about Coase’s perspective and say, “Good luck, that should clear up your confusion about Pigovian taxes.” Don’t get me wrong, it’s extremely important, I’m just saying you need someone to walk you through it.

I’m sorry but someone has to say it.

UPDATE: Oh here’s Daniel Kuehn on Coase as well, although (as he said more explicitly in this post) Daniel is saying, “Nobody believes in the naive Coase theorem, why do his fans keep claiming that?” and then follows with, “I believe in the naive Coase theorem, it is really interesting.” (Not exact quotes of course.)

UPDATE #2: He was so quick out of the gate, I hadn’t even caught this Peter Klein post on Coase.

12 Responses to “More Reflections on Ronald Coase”

  1. Bob Roddis says:

    Walter Block seems to have a few trivial concerns about Mr. Coase.


  2. David R. Henderson says:

    Re “Social Cost” being a bear to read, I agree. In fact, I’ve read it through exactly twice in my life and both readings were 40 years ago. Aaron Director does not appear to have been an aggressive editor.

  3. Bob Roddis says:

    Here’s the link to the Rothbard book discussing Coase.


    Go to page 253.

  4. Jonathan Finegold says:

    I think what Daniel is saying is that most economists aren’t saying that the only, or even main, Coasean lesson is that in a world of zero transaction costs externalities will be solved through a bargaining process. Rather, it’s a lesson that is the other side of the idea that in the real world transaction costs are positive, and that there’s just a difference in emphasis on which side economists want to explore. Like I write in a footnote here, I think Daniel is right. I’d go as far as to argue that the “naive” theory is not so naive, because it offers us the very important insight that there are gains from trade in the event of an externality, assuming the transaction costs to bargaining are low enough (not necessarily zero). Of course, the other side is also very important, and maybe offers a greater scope for research.

    • Daniel Kuehn says:

      Yep. We also have to be very careful with what people’s claims are. The adjective “Coasean” is pretty contentless on its own.

      If someone says “what Coase really thought happened most often and was the most interested in was the zero transaction cost case”, obviously that’s wrong.

      But if you just want to call the zero transaction cost case “Coasean” because he was the first one to really lay out the bargaining that would go on in that case and the problem of reciprocity that we have to worry about, I see nothing fallacious about choosing to attach that adjective for those reasons.

  5. guest says:

    For my own thoughts, I think Coase’s famous article “On Social Cost” is a bear to read.

    I’m sorry but someone has to say it.

    Looks like a job for these guys:

    Snakes – Top Dolla (My Dad’s a Proctologist)

    … I mean these guys:

    “Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem

  6. Matt Tanous says:

    I tend to agree with Walter Block’s position regarding Coase’s “On Social Cost”. It’s neglect of considerations of justice at first seems scientific – focusing solely on the economic aspects – but that disappears when one considers that people do, in fact, have a preference for justice as an end, so will seek that out. In the example, of the train and the farmer, most people would “side with” the person who was first to build there, as they value the justice of the property right as well as the services provided by the farm and train. In such a case, people will even SPEND MONEY to uphold the property right, instead of bargaining out a solution in the manner Coase describes.

    My only conversation with another regarding Coase’s work on the firm regarded that person’s argument that it justified totalitarian socialism (of which he was a proponent), so I’m still not sure what to make of that….

    Also, he did do that bit on market-produced lighthouses, so there is that.

  7. David Friedman says:

    For anyone who wants to be “walked through” the Coaseian analysis, let me immodestly recommend my piece webbed at:


  8. Daniel Kuehn says:

    Hmmm… not how I would put that.

    I think there is no real confusion about what Coase thought. Often if someone calls a zero transaction cost world a “Coasean” world they are met (by Coase himself in fact!) with scathing rebuke that they’re misunderstanding things. This, I don’t think, is true in most cases.

    I do think some people disagree with Coase on what set of conditions offered the most interesting insights. That’s why they attach the word “Coasean” to the zero transaction cost case.

    There’s something to that – I do have a degree of sympathy with finding this interesting. The bargaining resolutions especially in the case of reciprocal costs is a big added value that Coase brings. Who cares if Coase thought it wasn’t interesting? Daniel Kuehn think it’s interesting, and it’s Daniel Kuehn that I ultimately have to make peace with.

    Of course if we are talking about “the real world” it’s harder to say that – zero transaction costs obviously don’t apply.

    In the real world, we’re in a mix of Pigovian and Coasean circumstances.

    This is, of course, quite different from your little summary above.

  9. Daniel Kuehn says:

    Let me put it this way – if you had had the chance to corner George Stigler and ask him “do you think Coase thinks there are no transaction costs”, do you really, honestly think he would say “yes”?

    If you pressed him further “do you think Coase only found the zero transaction cost case interesting?” Do you honestly think he would say “yes”?

    Come on, we have to think in the context of The Nature of the Firm here too. It would be absurd to suggest that Stigler or almost anyone else would answer “yes” to either of these questions. Answering yes to the first implies you think Coase is an idiot. Answering yes to the second implies you know nothing about his work on the theory of the firm.

    The most natural conclusion is that Stigler took interest and saw innovation in a somewhat different set of problems than Coase did.

    That, of course, does not give economists as much of an opportunity to brow-beat each other and accuse each other of misunderstanding something.

  10. Silas Barta says:

    Coase: legitimizing extortion since 1960.

  11. guest says:


    Walter Block on The Dangerous Fanatic Ronald Coase

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