Ronald Coase, Nobel winning economists and long time editor of the journal, The Journal of Law and Economics, died Monday at the age of 102. He was a colleague and co-founder of what is sometimes called “the Virginia School of Economics” along with James Buchanan and Gordon Tullock, two of my instructors.
Coase is best known for 2 articles, one, “The nature of the firm,”
[Coase, Ronald H. (1937). "The Nature of the Firm," Economica 4 (16): 386–405] where he explains that firms exist because of what he called “transactions costs,” the cost of making transactions. Without transactions costs, he explained, everything could be organized through markets with no firms at all.
The second article for which Coase is known and where the central idea in the paper has been termed “the Coase Theorem” was “The Problem of Social Cost.” In that paper, Coase argued that the “externality problem,” also known as the “problem of social cost,” has, at its base, a problem of transactions costs, as people can bargain and reach the same position, no matter who is liable or who bears these costs.
Rest in Peace, Professor Coase.