Ronald Coase: "Markets, Firms and Property Rights"

Ronald Coase: "Markets, Firms and Property Rights"
(h/t Tschäff Reisberg on FaceBook)

This address by Ronald Coase (Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School) to the conference "Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase" was recorded November 23, 2009.

From Tschäff at FB"

Highlights: "Markets are creations, they aren't something we find... ..They are the result of people deciding to make contracts, and making all the negotiations necessary to bring it about."

"Firms are not to be analyzed in the way I did in 'The Nature of the Firm.' ..It is a very poor article although it has been much referred to. It talked about a firm like it was an entity in economic theory. I said as the firm got bigger there were decreasing returns to management. Well this is treating it like it is fertilizer being applied to land and you measure the outcome... ..Firms aren't like that, firms are entities where parts of the firm have an interchange with other parts. It's a sociological problem rather than an economic problem... ...Also I discovered there are friendships and antagonisms in firms. One part of the firms was always afraid that another part would mess up what they were doing. It operated in a very different way than it did in economic theory where you have a firm maximizing profits, knowing all the things that affect it and acting accordingly. It's very difficult to imagine firms act the way they do in the text books where they maximize profits by equating marginal costs and marginal revenue. One of the reasons one can feel doubtful about this particular way of looking at things is that firms never calculate marginal costs and so can not possibly act as they do in the textbooks. I think we should study directly how firms operate and develop our theory accordingly."

After giving a presentation advocating the allocation of radio frequencies via auction, his first response from the FCC was, "Is this all a big joke?" The FCC didn't imagine this solution, they thought their job was to chose the right people to use those frequencies. He responded, "Is it a joke to believe in the American economic system?" He got the idea from a student who got it from Abba Lerner. Abba Lerner was a fellow student of Coase at the LSE. "Abba was older than the rest of us, he was in a printing business that failed I always said it was because he put price according to marginal cost, but that's just a joke.. ..Our relations were always very good. He wrote a book called _The Economics of Control_, and a very fine book it is... ...He was a socialist who believed that socialism would be fine if only he carried out the various rules and regulations that he set in motion.