Ronald Coase was another of my heroes in economics. He was a gentleman, and he was brilliant.
His writing was obtuse and laboured. I first read his two classic articles about 1) the nature of the firm and 2) the problem of social cost when I was in graduate school in the late 1960s, and it was a struggle.
- "The Nature of the Firm" was a brilliant piece about why firms exist. One of the answers provide by Coase (in many more words than this and with much more subtlety) was that if transaction costs for making deals in the market are high, then it is more efficient for there to be firms to carry out some economic actions. When I read it, I didn't grasp the importance of the article; I thought it was trivial and silly. The major thrust and importance of the article didn't dawn on me until much later in my career, when I understood the importance of transaction costs a bit better, even though much of my early research had been on a related topic.
- I absolutely hated "The Problem of Social Costs" when I first read it. I was actually offended that someone might even consider examining the possibility that a pollutee could pay a polluter to stop polluting. And it was SO long and painful to read. Only when I re-read the paper 15 years later did I understand and appreciate the elegance of the paper and its examples. Of course understanding the simple propositions of what has come to be known as "the Coase Theorem" makes reading that article so much easier.
Some personal notes:
- In the early 1980s, we tried to persuade Professor Coase to visit the law and economics workshop at The University of Western Ontario. When I called to invite him, he declined quite apologetically, saying that he really didn't like to travel anymore.
- The year before he won the Nobel Prize in Economics, for some reason I was sent a card from the prize committee asking for my recommendation. I assume a similar card was sent to everyone in the American Economic Association, but I took it seriously and nominated Ronald Coase, noting his contributions in those two articles. It is silly, I know, but I claim partial credit for his having won the award the next year.
- Some years later, when I was president of the Canadian Law and Economics Association, we were discussing who to invite as our keynote speaker. I recall one member of the executive saying, "We should invite Coase. He isn't getting any younger, you know." That was probably about 20 years ago.
- I have had arguments with people who minimize the importance of the Coase Theorem, pointing out that it is likely nothing more than a restatement of Adam Smith's invisible hand or maybe even a tautology. My reaction, however, is that Coase pointed out the importance of understanding property rights (and their enforcement) and transaction costs. It is when the basic conditions of the Coase Theorem are NOT met that we understand the brilliance of Coase's work. And that has always been fun.
Others will mention other work by Coase. Others will point out that Simon Rottenberg did a version of the Coase Theorem for professional sports before Coase wrote his article. They will be right on both counts. But that doesn't detract from the amazing impact that Coase had on our understanding of economic issues.
Ronald Coase died today. He was 102.