Coase, Ronald (Harry) (1910- )

English-born US economist who won the Nobel Prize for Economics in 1991 for essentially two articles - ‘The Nature of the Firm’ (1937) and ‘The Problem of Social Cost’ (1960) - both of which spawned new sub-disciplines in economics: the economics of property rights and the economics of law.

‘The Nature of the Firm’, Coase's very first published paper, posed an innocent question that had never been asked before - why do business firms exist at all? - and concluded that the ‘transaction costs’ of coordinating all the inputs that would be required if everything was sub-contracted would be so large as to justify replacing the market mechanism by a centralized organization operated on hierarchical principles called a ‘firm’. The paper attracted little attention when it first appeared. The full impact of Coase's revolutionary idea of focusing on the costs of using the market became evident only later as economists moved increasingly towards an analysis of other non-profit, non-market institutions.

‘The Problem of Social Cost’ is like no other paper by an economist: it contains no diagrams or equations and consists largely of quotations from lawyers and judges. It was an attack on English economist Arthur Pigou's analysis of the spillover costs imposed on farmers by steam locomotives and on households by factory chimneys, which Pigou argued were ‘market failures’ requiring government intervention. Coase challenged Pigou's conclusions with a double-barrelled argument. Firstly, if property rights in all the relevant resources are clearly assigned and if all the individuals involved get together to negotiate with one another - ‘transaction costs are negligible’ - individuals themselves will be motivated to enter into voluntary agreements to shift the costs of pollution from the victims to the perpetrators. Secondly, even if transaction costs are so high as to preclude private negotiations, there is still no presumption that government intervention will improve matters; ‘government failure’ must be weighed against ‘market failure’. The growth of law and economics as a new branch of economics can be traced directly to Coase's article on social cost and his editorship from 1964 to 1982 of the Journal of Law and Economics.

Coase was born in Willesden, London, and entered the London School of Economics (LSE) as a commerce student in 1929. He graduated in 1932, taught for a while at LSE, and then moved on to the Dundee School of Economics in Scotland, followed by two years at the University of Liverpool, returning to the LSE in 1935, where he taught until 1951. Receiving his doctorate from the University of London in 1951, he emigrated to the USA. Seven years as a professor at the University of Buffalo (1951-58) were followed by six years at the University of Virginia (1958-64). In 1964 he moved to the University of Chicago from which he retired in 1979. Upon retirement, he was elected as a distinguished fellow of the American Economic Association. In 2001 he was senior fellow in law and economics at the University of Chicago Law School.

His publications include British Broadcasting: A Study in Monopoly (1950), Essays on Economics and Economists (1994), and The Firm, The Market and The Law (1998).