Lynne Kiesling (link section) posted this in her blog. She’s into transaction cost theory, I am into transaction cost theory. So I am going to spread the word about this illustration of the Coase theorem by Megan McArdle.
She also mentions a reference to Coase’s 1988 book “The Firm, The Market, And The Law“. She, like most people, including the Nobel Price committee, believes that “The Problem of Social Cost” is the most fundamental thing in the book (and most fundamental work he has written).
I tend to disagree with most people, and luckily, Coase is on my side (that is if I remember correctly, because I really can’t remember where I read this). Both of us think that “The Nature Of The Firm” is his most important paper. But first chapter in the book is one of the best things I have ever read in graduate school. All business and economics students should have read it. Probably before they start reading standard micro/macro textbooks.
A while ago someone on Brad DeLong’s guestbook was whining that he doesn’t understand why people learn about the optimum macroeconomic policy if it is never going to be applied “in the real world”. If you think so, too, check out Coase. He’ll tell you why. And after that you’ll also understand why Douglass North believes in the remarriage of economic and political thought (in the medium run, and I’ll post the source later).