4 ms·

One of the more interesting and accessible modern economists (published int he 30s, died recently) is Ronald Coase. A few years ago (before his death) he inter

One of the more interesting and accessible modern economists (published int he 30s, died recently) is Ronald Coase. A few years ago (before his death) he interviewed on econtalk where he complained about economics teaching "Coase theorem" with the exact opposite conclusions to the ones he intended. I was taught "coase theorem" so I went back and read his old papers. His perspective is all about examining transaction costs. He starts with absurdities, that exist but shouldn't given standard economics. If free markets and incentives are so important to economies, why don't they exist in companies. Companies are centralized bureaucratic organizations. Incentives are highly distorted and the structure is non dynamic. No internal exposure to "market" results, no competition, no creative destruction. Why don't contracts and dynamism yield an emergent company-like-thing where individuals contract with eachother? His answer is transaction costs, and the friction inherent in free market transactions. A side effect of the theory is that there is a tremendous amount of potential wealth lost to inefficiency and transaction costs.

noam87 9y ago
Any more on this subject for further reading / listening?
- dalbasal 9y ago
  His original papers are as accessible as popular press. The big ones are “Nature of the Firm” and “The Problem of Social Cost.” For the 2nd one, Coase complained it is used to reach the opposite conclusion than he intended.^ http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937.tb00002.x/abstract http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937.... http://home.cerge-ei.cz/ortmann/UpcesCourse/Coase%20-%20The%20problem%20of%20Social%20Cost.pdf http://home.cerge-ei.cz/ortmann/UpcesCourse/Coase%20-%20The%... ^Essentially, Coase argues that in the absence of transaction costs, abcd. He meant this as a way of highlighting the importance of transaction costs, with abcd being obviously false in reality. Economists tend to assume efficient markets in their theory, so many read that statement to be boilerplate economist caveats.
arethuza 9y ago
Charles Koch has a management theory called "Market-Based Management" that claims to run the internals of organisations as markets with internal competition: https://en.wikipedia.org/wiki/Market-Based_Management_Institute https://en.wikipedia.org/wiki/Market-Based_Management_Instit... [NB I'm in the middle of reading "Dark Money" so don't take this as a positive recommendation.]
- ryandvm 9y ago
  You might be interested in his recent interview on Freakonomics: http://freakonomics.com/podcast/why-hate-koch-brothers-part-1/ http://freakonomics.com/podcast/why-hate-koch-brothers-part-...
  - clutchdude 9y ago
    Just finished it. Much like Koch would say, I walked away with some good things and bad things. I agreed with the ability to not shackle workers with arbitrary social crimes but, in the end, fell flat. It seemed like there is no stance too severe that will cause the Koch brothers to not work with you if you support less regulation and restrictions on trade and production. I had hoped that the podcast would bring up the idea that maybe there is a higher cost being incurred by their activities and relate it to tragedy of the commons. I assume Koch would have dismissed it as speculation and that you can't pin their work to causing environmental damage.
marcosdumay 9y ago
His point of view shouldn't matter. He's work is not a philosophical text, it's an empirically based model that explain a part of a real system. You do see physicists complaining around that, an interpretation of quantum mechanics is a bad one, but it's always in a "it does not really matter" context, the same should apply to economics. Anyway, some times I wonder if economists shouldn't use nonsense made-up names, like physicists do. Coarse's "transaction costs" include way more than contract settling and money transfer taxes. The use of that meaningful term confuses the hell out of everybody, and we get people talking about simplifying contracts in contexts where the highest costs are around acquiring shared knowledge.

noam87 9y ago

Any more on this subject for further reading / listening?

dalbasal 9y ago
His original papers are as accessible as popular press. The big ones are “Nature of the Firm” and “The Problem of Social Cost.” For the 2nd one, Coase complained it is used to reach the opposite conclusion than he intended.^ http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937.tb00002.x/abstract http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937.... http://home.cerge-ei.cz/ortmann/UpcesCourse/Coase%20-%20The%20problem%20of%20Social%20Cost.pdf http://home.cerge-ei.cz/ortmann/UpcesCourse/Coase%20-%20The%... ^Essentially, Coase argues that in the absence of transaction costs, abcd. He meant this as a way of highlighting the importance of transaction costs, with abcd being obviously false in reality. Economists tend to assume efficient markets in their theory, so many read that statement to be boilerplate economist caveats.

arethuza 9y ago

Charles Koch has a management theory called "Market-Based Management" that claims to run the internals of organisations as markets with internal competition: https://en.wikipedia.org/wiki/Market-Based_Management_Institute https://en.wikipedia.org/wiki/Market-Based_Management_Instit... [NB I'm in the middle of reading "Dark Money" so don't take this as a positive recommendation.]

ryandvm 9y ago
You might be interested in his recent interview on Freakonomics: http://freakonomics.com/podcast/why-hate-koch-brothers-part-1/ http://freakonomics.com/podcast/why-hate-koch-brothers-part-...
- clutchdude 9y ago
  Just finished it. Much like Koch would say, I walked away with some good things and bad things. I agreed with the ability to not shackle workers with arbitrary social crimes but, in the end, fell flat. It seemed like there is no stance too severe that will cause the Koch brothers to not work with you if you support less regulation and restrictions on trade and production. I had hoped that the podcast would bring up the idea that maybe there is a higher cost being incurred by their activities and relate it to tragedy of the commons. I assume Koch would have dismissed it as speculation and that you can't pin their work to causing environmental damage.

marcosdumay 9y ago

His point of view shouldn't matter. He's work is not a philosophical text, it's an empirically based model that explain a part of a real system. You do see physicists complaining around that, an interpretation of quantum mechanics is a bad one, but it's always in a "it does not really matter" context, the same should apply to economics. Anyway, some times I wonder if economists shouldn't use nonsense made-up names, like physicists do. Coarse's "transaction costs" include way more than contract settling and money transfer taxes. The use of that meaningful term confuses the hell out of everybody, and we get people talking about simplifying contracts in contexts where the highest costs are around acquiring shared knowledge.