Forever Contemporary – The Economics of Ronald Coase | Free book from Institute of Economic Affairs

Summary:

  • R. H. Coase (1910–2013), a leading modern figure in the classical liberal tradition, was awarded the Nobel Prize in Economics in 1991 for his analysis of the significance of transaction costs and property rights for the functioning of the economy.
  • Before Coase’s work in the 1930s, there was no real understanding of the relation between the theory of the firm and the theory of markets. Coase showed that the size and structure of firms, and the location of the border between internal exchange within the firm and external exchange through markets, are systematically related to the costs of transactions.
  • These transaction costs, which Coase termed ‘costs of using the price mechanism’, include search and information costs (those involved in finding business partners, rather than having to produce your own inputs), bargaining costs (which rise sharply with the number of contractual partners) and enforcement costs (which, in the absence of a strong and effective legal framework, depend largely on trust in partners). When these costs alter dramatically, for example, as a result of introducing innovative technology, we can expect substantial alterations in firm and market structures.
  • Coase was a pioneer in the modern analysis of environmental issues. He showed that, with clear property rights and low transactions costs, private solutions to many environmental problems can be achieved without government regulation. Such solutions were logically independent of the initial distribution of property rights. This is highly relevant to a number of modern economic problems which the government currently handles badly, such as land-use planning.
  • His work has had a profound effect on later generations of economists, several of whom themselves won Nobel Prizes. His work on environmental issues, for example, influenced another Nobel Prizewinner in Elinor Ostrom, whose work focused on how common pool resources could be used effectively with minimal government intervention. This is especially relevant to debates about environmental and ecological degradation in forestry, fishing and game animal resources – perhaps particularly in developing economies.
  • Similarly his work on the firm led to the development of the ‘New Industrial Economics’, now associated with Oliver Williamson, which has changed our understanding of issues of economic governance. This is relevant to current concerns over corporate social responsibility.
  • Coase’s editorship of the Journal of Law and Economics over many years did much to stimulate economic analysis of legal institutions, an innovation which has had a major influence on public policy, particularly in the US. It has fed, for instance, into recommendations for accident compensation.
  • Coase’s insights have challenged economists’ assumptions about the nature of public goods, which he demonstrated could often be provided more effectively by various forms of private initiative. He also illuminated such varied topics as the allocation of spectrum bandwith, the regulation of financial institutions and water resource management.
  • Methodologically, Coase was opposed to ‘blackboard economics’ which relied on theory or econometric analysis at the expense of more practical investigation. He favoured careful examination of case studies and the history of industries when analysing economic policy issues.
  • His work retains considerable significance in the twenty-first century. Coase’s analysis of China’s economic advance, published shortly before his death, sheds light on its future prospects, while his transaction cost approach can be argued to explain the new phenomenon of the ‘sharing’ economy which is reshaping businesses and employment. Furthermore his work should continue to be at the forefront of debates surrounding regulation, broadcasting and the environment. If policymakers and the economists who advise them ignore Coase, they are in danger of perpetuating policies which may work ‘in theory’ but do not work effectively in practice.

Source: Forever Contemporary – The Economics of Ronald Coase | Institute of Economic Affairs

How condescension benefits terrorism

Nick Cohen: Writing from London

If European Muslims are treated like children, is it surprising that some should act so irrationally?

Nick Cohen
Sunday November 25, 2007
The Observer

I looked at the heckler at the Labour meeting and imagined his life in an instant. As a man of the 1968 generation there must have been sit-ins and marches, along with vicarious thrills at the triumphs of communists from Cambodia to Cuba. I guessed that with communism dead he would have no difficulty in endorsing the new threat to the status quo from the radical right. I wasn’t disappointed.
Only rich Iranians wanted democracy, he declared. The true voice of the masses, the tribune of the people we must attend to and negotiate with, was Mahmoud Ahmadinejad.

I have become so used to hearing leftists defending reactionaries I am no longer shocked. But my ’68er surprised me with a form of bad faith I had…

View original post 907 more words

Don’t look to the Pope to defend your freedoms

Nick Cohen: Writing from London

5151Observer 9 January 2016

The only respectful way to mark the first anniversary of the Paris killings is to honour the memory of the dead by fighting for the Enlightenment values they lived by and died for. Whether we can is moot. Anglo-Saxon societies have enjoyed the privilege of Enlightenment freedoms for so long our defences have fallen into disrepair. We fool ourselves into thinking we are in a post-Enlightenment world. The old battles appear dead and gone, even though all around us murderous fanatics remind us that they intend to fight the war all over again.

View original post 990 more words

The Broader View: The Positive Effects of Negative Nominal Interest Rates

iMFdirect - The IMF Blog

By Jose ViñalsSimon Gray, and Kelly Eckhold

Version in Deutsch (German)

We support the introduction of negative policy rates by some central banks given the significant risks we see to the outlook for growth and inflation. Such bold policy action is unprecedented, and its effects over time will vary among countries. There have been negative real rates in a number of countries over time; it is negative nominal rates that are new. Our analysis takes a broad view of recent events to examine what is new, country experiences so far, the effectiveness of negative nominal rates as well as their limits and their unintended consequences. Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability. Still, there are limits on how far and for how…

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Research Questions for Economics Graduate Students

PILEUS

Are you an economics graduate student casting about for dissertation topics? I have a few ideas for you. As part of the rewriting of Freedom in the 50 States, I’ve been reviewing the economic literature on how various public policies affect consumer and producer surplus, deadweight loss, and so on. We use an estimate of “victim cost” for each policy to weight the policy. The weighted sum of policies comprises the freedom index. Interestingly, the literature on some public policy issues is quite thin. That makes it difficult for us to come up with weights, and sometimes we have to do no more than guess.

Without further ado, here is a list of research questions to which I for one would like to see credible answers:

  1. How productive are publicly owned hospitals relative to for-profit and charitable ones?
  2. How accurate are people in estimating how much of their state’s…

View original post 953 more words

What will global GDP look like in 2030?

US policy fails at reducing child poverty because it aims to fix the poor

Family Inequality

If we want to help kids, it’s time to focus on money, not marriage.

[This piece was originally published by the Washington Post at Post Everything.]

From the first federal social welfare program for Civil War widows to Social Security and the 1960s War on Poverty, government support for poor families in the United States has attempted to enforce a moral hierarchy based on marriage: Widows got pensions they were considered to have earned, for example, while single mothers got shame and stigma for their moral misdeeds.

Since the 1960s, as marriage rates have fallen and women’s employment opportunities have improved, fewer and fewer women rely on husbands for their material needs. Now, the majority of children no longer depend primarily on the income of a married father. And yet, our policies to alleviate poverty still remain focused on correcting the behavior of poor people – especially their marital…

View original post 1,781 more words

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@BillClinton was not triangulating on welfare reform

Darwin awards: The Islamic State was backed by 46,000 accounts on Twitter in 2014

Utopia, you are standing in it!

Accounts Created, By Year

I wonder how many of these idiots remember to switch off the location function in their Twitter account?

Location Claimed in Profile

Every time they tweet they put a well-deserved target on their back.

via Defining and describing the population of ISIS supporters on Twitter | Brookings Institution.

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Federal Court rules in Favour of Plaintiffs Demanding Climate Action

Watts Up With That?

Original image author Chris Potter, http://www.stockmonkeys.com, image modified Original image author Chris Potter, http://www.stockmonkeys.com, image modified

Guest essay by Eric Worrall

Federal court Justice Thomas Coffin has ruled that child plaintiffs suing the Federal Government have a right to put their case, that the US Government has a constitutional obligation to reduce CO2 emissions. But the consequences of this case may go far beyond an economically damaging change to US internal policy. If the plaintiffs win, what will the USA be obligated to do, if the “harmful” CO2 is mostly emitted by other countries?

In the first lawsuit to involve a planet, Judge Thomas Coffin of the United States Federal District Court in Eugene, Oregon, ruled on Friday in favor of twenty-one plaintiffs, ages 8 to 19, on behalf of future generations of Americans in a landmark constitutional climate change case brought against the Federal Government and the Fossil FOSL -1.91% Fuel Industry.

The lawsuit alleges that the…

View original post 761 more words

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