Tag Archives: Ronald Coase

Knowledge as a factor of production. Knowledge is broader than information. Knowledge includes tacit knowledge, skill, and critical and creative thinking. In other words, the study of knowledge involves epistemology, logic and language, psychology, and other relevant fields in addition to information.  Information can be formalized but a great deal of knowledge cannot, at least given present limitations and future prospects through technology. Labor as the human component of...

Most theories of the firm within economics pick up the narrative with the existence of the corporation as a given. They then bend over backwards to retro-fit this highly centralized pseudo economy into the larger free market narrative preferred in all major textbooks. In so doing they blithely ignore Alfred Chandler’s famous explanation for the rise of modern business organization, which he argued became possible “only when the hand of management proved be more efficient than the invisible...

That idea, that the market ensures that only the most efficient prosper, is a central message of neoliberal ideology, and it has held UK and US governments under its sway since the time of Thatcher and Reagan. But that ideology contains a large and deep internal contradiction, which applies particularly to large firms like Carillion. To see what that contraction is, we need to talk about ordoliberalism and Ronald Coase.Ordoliberalism is widely known as the German version of neoliberalism....

Must-read unless you are really up on transaction cost. As Simon says, companies that win tenders by bidding low have an incentive to cut quality. The question is: is it possible to stop this happening? It’s here that transactions cost economics enters. This perspective began with Ronald Coase’s famous essay, The Nature of the Firm (pdf). Whether we should do a job in-house or through the market depends upon the comparative costs. And, he said, “there is a cost of using the price...

Hayek, Coase and uncertainty. In any case I find it fascinating that the two, Hayek and Coase, both in their own way, brought the impact of uncertainty to the fore in the same year. It’s a shame that economics has never fully embraced, nor realized, the full richness of their ideas. Neither author was willing to step into the world that they clearly understood existed. Hayek was right about universal central planning: it is an impossibility. He was wrong to assert that this implied...