Of course there has been a lot written about Ronald Coase this week, marking his death at the age of 102. I thought Joshua Gans was very good, and this short paper by Herbert Hovenkamp usefully sets Coase in the context of the economic debates of the times. Justin Wolfers linked to this terrific (pdf) Deirdre McCloskey note on the Coase Theorem from 1998. There’s a lot of commentary, though, and it’s interesting to see how many different perspectives on his work there are – truly, there is a Coase for everyone.
As it happened, Tim Harford wrote last weekend (FT) about one of the intellectual heirs of the Coasian tradition of institutional economics, Elinor Ostrom, in an article contrasting her richness of thought with the catchy but shallower work of Garrett Hardin on the ‘tragedy of the commons’. Ostrom had researched how disputes over water rights in and around Los Angeles had been resolved by negotation, Harford writes:
“She knew of other examples, too, in which common resources had been managed sustainably without Hardin’s black-or-white solutions.
The problem with Hardin’s logic was the very first step: the assumption that communally owned land was a free-for-all. It wasn’t. The commons were owned by a community. They were managed by a community. These people were neighbours. They lived next door to each other. In many cases, they set their own rules and policed those rules.”
Ostrom’s co-winner of the Nobel Prize was Oliver Williamson, who took the Coasian tradition in a different direction, equally fascinating. He studied the structure and activity of businesses, taking forward Coase’s original research questions – why do firms exist? What explains why a large firm can succeed whereas a planned economy like the Soviet Union runs into trouble? I always think Williamson’s brilliant books The Economic Institutions of Capitalism and The Nature of the Firm should be read alongside Herbert Simon’s Administrative Behaviour. Simon brings another perspective to understanding business organisations and the institutions of capitalism, introducing the wrinkles of actual human decision-making. As Simon famously observed, an alien landing in a capitalist economy would note that the domain of administered organisations including firms would far exceed the domain of market transactions.
The Economic Institutions of Capitalism
Administrative Behavior: A Study of Decision-making Processes in Administrative Organizations: A Study of Decision-making Processes in Administrative Organisations
There is a terrific recent guide to using economic theory, including transaction cost and information economics, to the world of modern business in The Org: The Underlying Logic of the Office by Ray Fisman and Tim Sullivan – I reviewed it here.
The Org: The Underlying Logic of the Office