Ronald H. Coase PDF
Preview Ronald H. Coase
RONALD H. COASE CONTEMPORARY ECONOMISTS General Editor: John Pheby, Professor of Political Economy, De Montfort University, Leicester, England The Contemporary Economists series is designed to present the key ideas of the most important economists of this century. After an opening biographical chapter, the books in this series focus on the most interesting aspects of their subject's contribution to economics, thus providing original insights into their work. Students and academics alike will be fascinated by the wealth of these economists' contributions and will be able to look with fresh eyes on their discipline. Ronald H. Coase Steven G. Medema Assistant Professor Department of Economics University of Colorado at Denver ©Steven G. Medema 1994 Softcover reprint of the hardcover 1st edition 1994 978-0-333-55645-0 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this pubhcation may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright. Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP9HE. Any person who does any unauthorised act m relation to this publication may be liable to criminal prosecution and civil claims for damages. F1rst published in Great Britain 1994 by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-12488-6 ISBN 978-1-349-12486-2 (eBook) DOI 10.1007/978-1-349-12486-2 First published in the United States of America 1994 by Scholarly and Reference Division, ST. MARTIN'S PRESS, INC., 175 Fifth Avenue, New York, N.Y. 10010 ISBN 978-0-312-12039-9 Library of Congress Cataloging-in-Publication Data Medema, Steven G. Ronald H. Coase I Steven G. Medema. p. cm. Includes bibliographical references and index. ISBN 978-0-312-12039-9 I. Coase, R.H. (Ronald Harry) 2. Economists-Great Britain -Biography. 3. Economics-History-20th century. I. Title. HBI03.C57M43 1994 330' .092--dc20 [BJ 93-37501 CIP 10 9 8 7 6 5 4 3 2 04 03 02 0 I 00 99 98 97 96 To all of the teachers who have helped me to find my own way, and especially John Spykman David Schelhaas Leon Van Rees Stanley Wiersma John Dodge Warren J. Samuels Contents Preface ix 1 Markings on a Long Journey 1 1.1 A short biography 1 1.2 Apn!cis ofCoase's career 6 2 The Nature of the Firm 13 2.1 Background 13 2.2 The nature of the firm: discovery 15 2.3 Influence 21 2.4 Conclusion 38 3 Pricing, Accounting and Costs 41 3.1 Marginal cost pricing 41 3.2 The theory and measurement of costs in economics and accounting 52 4 The Problem of Social Cost 63 4.1 Some background 63 4.2 'The Federal Communications Commission': the first salvo 65 4.3 'The Problem of Social Cost': a new paradigm 68 4.4 The legacy of 'The Problem of Social Cost' 81 4.5 A summing up 92 5 Government and the Market 95 5.1 Introduction 95 5.2 The BBC monopoly 95 5.3 The FCC and broadcasting in the United States 106 5.4 Payola: bribery as efficiency in broadcasting 112 5.5 Business and consumer interests 115 5.6 Regulatory bodies 117 5.7 The economic role of government 120 vii viii Contents 6 Coase's View of Economics 128 6.1 The nature of economics 128 6.2 The role of realism 134 6.3 Mathematical and quantitative analysis 137 6.4 Economic imperialism: taking our show on the road 145 6.5 Economists and public policy 151 7 The Place of Ronald Coase in the History of Economic Thought 162 7.1 The importance of transaction costs 162 7.2 Reality, law and economic institutions 167 7.3 Insider or outsider? 174 Notes 178 Bibliography 192 Index 204 Preface In 1991 Ronald Coase was awarded the Nobel Memorial Prize in Eco nomic Sciences. Over the course of an academic career spanning more than six decades, Coase has brought his own particular approach to economics, and in the process has profoundly affected the way that economists view the firm, the relations between the law, economics and the economic system, and the possibilities and limitations of markets. The development of the New Institutional Economics and of modern law and economics have their roots very much in Coase's work. This book aims to present a systematic analysis of Coase's contributions to economics. It does not pretend to present a comprehensive analysis of his writings; rather, it focuses on his most important contributions and the central themes of his analysis, including the nature of the firm, pricing and cost analysis, the analysis of externalities, the economic role of govern ment and economic method. The final chapter of the book attempts to put forward a preliminary assessment of Coase's legacy in economics. The preparation of this work has been greatly aided by the efforts of numerous individuals. Warren J. Samuels and Thrainn Eggertsson gra ciously consented to review the entire manuscript, and portions of the manuscript were reviewed by Oliver E. Williamson and Richard O. Zerbe, Jr. The numerous useful comments provided by these individuals have served to greatly strengthen the final product. Ronald Coase was also kind enough to provide me with some materials that aided the research process. Financial support for this project was provided by the College of Liberal Arts and Sciences and the Graduate School of the University of Colorado at Denver. The University of Colorado at Denver Department of Econom ics was kind enough to provide release time which aided in the comt>letion of this project. Secretarial support was generously and speedily provided by Lynn Ferguson and Karen Chan. Finally, an enormous debt of gratitude is owed to my wife Debra, who provided encouragement and editorial assistance, and put up with a hus band who, over the course of this project, was all too often hidden in his office or lost in thought. Highlands Ranch, Colorado STEVEN G. MEDEMA ix 1 Markings on a Long Jo umey 'I was never less alone than when by myself' - Edward Gibbon, Memoirs, Vol. 1, p.ll7. 1.1 A SHORT BIOGRAPHY His father's diary records that Ronald Harry Coase was born at 3.25 p.m. on 29 December 1910 in a flat in the London suburb of Willesden. He was the only child of parents who exhibited a strong interest in the sporting life (his father competed in lawn bowling until his death and his mother played tennis well into her later years), but who showed 'no interest in academic scholarship' (Coase, 1991, p.l). As one might expect of an only child, Coase reports that he was a loner, a trait later manifested in an academic career where he did little jointly authored work, spent the last half of his career as an economist who worked in a law school, and engaged in research that in many ways made him an outsider within the economics profession. I Coase says that the major lesson that he learned from his mother was to always be 'honest and truthful', a lesson that he believes has 'lent some strength to my writing' (Coase, 1991, p.l). He tells of his mother's hero being 'Captain Oates, who, returning with Scott from the South Pole and finding that his illness was hampering the others, told his companions that he was going for a stroll, went out into a blizzard and was never heard of again' (Coase, 1991, p.l). Because of this, Coase says, 'I have always felt that I should not be a bother to others but in this I have not always succeeded' (Coase, 1991, pp.I-2). Coase also writes of being taken by his father to see a phrenologist at age 11. Coase summarizes this experience, which seems to have been a strangely accurate prediction of the future, as follows: Out of the various printed summaries of character in his booklet, that chosen for 'Master Ronald Coase' started: 'You are in possession of much intelligence, and you know it, though you may be inclined to underrate your abilities.' This printed summary also included the follow ing remarks: 'You will not float down, like a sickly fish, with the tide ... you enjoy considerable mental vigor and are not a passive instrument in the hands of others. Though you can work with others and for others, 1
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