Ronald
Coase received the Nobel Prize in Economics for discovering the significance of
transactions costs for the functioning of the economy. His Nobel citation compared Coase’s
identification of such costs to the discovery of a new set of elementary
particles in physics. His work forced
economists and lawyers to rethink the most fundamental questions of their
disciplines and created the modern field of law and economics. He also explained the origin and nature of
firms and what limits their size.
The Nobel Committee recognized
Professor Coase “for his discovery and clarification of the significance of
transaction costs and property rights for the institutional structure and
functioning of the economy.”
Quotes from Ronald Coase’s April 1994 lecture at
If his words are interpreted to mean
that I started with a relatively simple theory and gradually, purposefully
added building blocks until I had accumulated all that were needed to construct
a theory of the institutional structure, it would give a misleading view of the
development of my ideas. I never had a
clear goal until quite recently. I came
to realize where I had been going only after I arrived. The emergence of my ideas at each stage was
not part of some grand scheme. In the
end I found myself with a collection of blocks which, by some miracle, fit
together to form, not a complete theory, but, as Lars Werin indicated, the
foundation for such a theory.
And my mother taught me to be honest
and truthful. Frank Knight has said:
“The basic principle of science – truth or objectivity – is essentially a moral
principle.” My endeavors to follow my
mother’s precepts have, I believe, been important in my work. My aim has always been to understand the
working of the economic system, to get to the truth, rather than to support
some position. And in criticizing
others, I have always tried to understand what their position was and not to
misrepresent it. I have never been
interested in cheap victories.
Whether a transaction would be
organized within a firm or whether it would be carried out on the market
depended on a comparison of the costs of organizing such a transaction within
the firm with the costs of a market transaction that would accomplish the same
result. All this is very simple and
obvious. But it took me a year to
realize it – and many economists seem unaware of it (or its significance) to
this day…As it was a new approach (I think) to this subject, I was quite
pleased with myself. One thing I can say
is that I made it all up myself. As I
said in my Nobel Prize lecture, I was then twenty-one and the sun never ceased
to shine.
A year or two after the appearance
of “The Problem of Social Cost” I received an invitation to join the faculty of
the
Additional resources
on Ronald Coase are available at the Nobel web
site.