Coase on Being Misunderstood

OCTOBER 5, 2005

The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave.

Ronald Coase, The Firm, The Market and The Law (Univ. of Chicago Press, Chicago, 1988), p. 174.

This is a point I often make to people, especially those doing Law and Economics who seem fixated on his 1960 JLE paper and the 'Coase Theorem' (assignment of property rights does not matter as bargaining will ensure the efficient outcome). The irony for anyone who reads the actual article is that that particular point is made briefly at the start and is there only to lead in to the main question: how should we set things up when bargaining is not possible.