Ronald H. Coase, Awarded Nobel Prize in 1991,
Lecture presented April 12, 1994.
He 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.”
From the Lives of the Laureates (Lecture presented April 12, 1994)
“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.” (pp. 227-28)
“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.” (p. 229)
“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.” (pp. 233-35)
“A year or two after the appearance of “The Problem of Social Cost” I received an invitation to join the faculty of the University of Chicago. What attracted me to the position at Chicago was that part of my duties would be to edit the Journal of Law and Economics. I have already spoken of my admiration for the Journal and the articles it contained. I wanted to continue this work, and I went to Chicago to do it…As a result, many splendid articles were published. This was a very happy period for me. Every article was an event.” (p. 243)