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Parisi, Francesco --- "Coase Theorem and Transaction Cost Economics in the Law" [2005] ELECD 125; in Backhaus, G. Jürgen (ed), "The Elgar Companion to Law and Economics, Second Edition" (Edward Elgar Publishing, 2005)

Book Title: The Elgar Companion to Law and Economics, Second Edition

Editor(s): Backhaus, G. Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845420321

Section: Chapter 1

Section Title: Coase Theorem and Transaction Cost Economics in the Law

Author(s): Parisi, Francesco

Number of pages: 33

Extract:

1 Coase theorem and transaction cost
economics in the law
Francesco Parisi1


This chapter discusses the pervasive methodological implications of Ronald
H. Coase's contribution to economics and the law. Coase's reconceptualization
of the firm as an institutional device to minimize transaction costs has trig-
gered an entire field of research. The traditional view of production, where
labour and capital are the primary inputs, is refocused and replaced by the
important role of governance structures in firms. Similarly, Coase's assertion
that an initial assignment of property rights is often irrelevant to overall
welfare has occasioned one of the most intense and fascinating debates in the
history of legal and economic thought. In the following pages, I shall exam-
ine the state of legal and economic scholarship in the wake of Coase's
well-known methodological breakthroughs.

Transaction costs and Coase's theory of institutions
In his classic 1937 paper, `The nature of the firm', Coase developed an
economic theory of the firm which laid the foundation for understanding a
wide range of institutional and organizational structures.2 Coase's pathbreaking
insight was that the comparative costs of organizing transactions within firms,
rather than through markets, are the main factors that explain the existence
and evolution of firms.3 Likewise, the size and scope of firms is determined
by the relative costs of accessing the market versus governing an organization
at the various levels of production.4
A wide range of empirical and theoretical issues have arisen as a ...