Ronald H. Coase quote: “Why… are there any market transactions at all? Why not all production carried on by one big firm?… First, as a firm get…”

“Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 388

“The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. This determines what the firm buys, produces, and sells. As the concept of transaction costs is not usually used by economists, it is not surprising that an approach which incorporates it will find some difficulty in getting itself accepted. We can best understand this attitude if we consider not the firm but the market.”

Ronald H. Coase (1910–2013) British economist and author

1960s-1980s, "The Firm, the Market, and the Law" (1988)

“The circular-flow diagram offers a simple way of organizing the economic transactions that occur between households and firms in the economy. The two loops of the circular-flow diagram are distinct but related. The inner loop represents the flows of inputs and outputs. The households sell the use of their labor, land, and capital to the firms in the markets for the factors of production. The firms then use these factors to produce goods and services, which in turn are sold to households in the markets for goods…”

N. Gregory Mankiw (1958) American economist

N. Gregory Mankiw, Brief Principles of Macroeconomics. 2011, p. 24-25
2000s -

“The question always is, will it pay to bring an extra exchange transaction under the organizing authority? At the margin, the costs of organizing within the firm will be equal either to the costs of organizing in another firm or to the costs involved in leaving the transaction to be “organised” by the price mechanism. Business men will be constantly experimenting, controlling more or less, and in this way equilibrium will be maintained. This gives the position of equilibrium for static analysis.”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 404

“Business firms, in which controlled cooperation takes place, are the first important implication of costly transactions. The laissez-faire filtering process, using the profit test, selects some of these business organizations for survival and rejects others.”

Harold Demsetz (1930–2019) American economist

Source: Economic, Political, and Legal Dimensions of Competition. 1980, p. 25

“Transaction costs were used in the one case to show that if they are not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose.”

Ronald H. Coase The Nature of the Firm

Ronald H. Coase (1988). "The Nature of the Firm: Influence." Journal of Law, Economics, and Organization 4 (No. 1, Spring): 33—47. p. 34; as cited in Eggertsson (1990; xiii)
1960s-1980s

“Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded.”

Ronald H. Coase (1910–2013) British economist and author

1960s-1980s, "The Firm, the Market, and the Law" (1988)

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Harold Demsetz (1930–2019) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Armen Alchian (1914–2013) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

“Because internal organization experiences added bureaucratic costs, the firm is usefully thought as the organization of last resort: try markets, try hybrids (long term contractual relations into which security features have been crafted), and resort to firms when all else fails”

Oliver E. Williamson (1932) American economist

compatatively
Oliver E. Williamson (1999, p. 1091) cited in: Steve Cropper (2008) The Oxford Handbook of Inter-organizational Relations. p. 355.

Help us to complete the source, original and additional information

Ronald H. Coase 19

Related quotes

Related topics