Ronald H. Coase helped create the field of law and economics, through groundbreaking scholarship that earned him the 1991 Nobel Memorial Prize in Economic Sciences and through his far-reaching influence as a journal editor.
Coase, who spent most of his academic career at the University of Chicago Law School, died at the age of 102 on Sept. 2 at St. Joseph’s Hospital in Chicago. He was the oldest living Nobel laureate, according to the Nobel Foundation.
Coase, the Clifton R. Musser Professor Emeritus of Economics, is best known for his 1937 paper, “The Nature of the Firm,” which offered groundbreaking insights about why firms exist and established the field of transaction cost economics, and “The Problem of Social Cost,” published in 1960, which is widely considered to be the seminal work in the field of law and economics. The latter set out what is now known as the Coase Theorem, which holds that under conditions of perfect competition, private and social costs are equal.
“That Ronald Coase is among the most influential and best-cited economists in the past 50 years is not debatable,” said Law School Professor Emeritus William M. Landes and Sonia Lahr-Pastor, JD’13, a researcher at the Law School, in “Measuring Coase’s Influence.” They presented the paper at a 2009 conference titled “Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase.”
“Among the highest aspirations of the University of Chicago is to create new fields of study that change our world for the better,” said President Robert J. Zimmer. “Ronald Coase embodied that ideal. His groundbreaking scholarship made impacts on law and policy that people around the globe continue to feel today. As a scholar, a colleague and a mentor, his historic contributions enriched our intellectual community and the world at large.”
“Ronald Coase achieved what most academics can only dream of – immortality,” said Michael H. Schill, dean of the University of Chicago Law School. “His scholarship fundamentally changed the way lawyers approach issues of when and how government should intervene in the economy, and when and how private contracts should govern. His work could not be more relevant to many of the debates we are enmeshed in today.
“Our great law school has contributed much to the world of law and jurisprudence,” Schill said. “Ronald’s contributions were among the most important.”
His intellectual impact continued late into his life, when at the age of 101, he published his final book, How China Became Capitalist, co-authored with former student Ning Wang, PhD’02.
Coase’s enduring legacy at the University of Chicago is reflected in the Law School’s Coase-Sandor Institute for Law and Economics, named in honor of Coase and donors Richard and Ellen Sandor, who gave UChicago $10 million in support of law and economics scholarship.
“Ronald Coase inspired a new way of thinking about law and about the application of economics,” said Omri Ben-Shahar, the Leo and Eileen Herzel Professor of Law and Kearney Director of the Coase-Sandor Institute. “His insights are simple but at the same time profound. They are accessible to first-year students, and their implications continue to provoke cutting-edge research. We will continue to develop the field that he inspired, and to build on the vitality of his ideas.”
“Professor Coase’s research on property rights provided the academic underpinning for the establishment of the Acid Rain Program in the United States in the early 1990s, which virtually eliminated acid rain pollution in America,” said Richard Sandor, chairman and chief executive officer of Environmental Financial Products, LLC. “Personally, he has been a source of inspiration and mentoring to me for over 40 years. Professor Coase provided me with unwavering intellectual support to carry on my ideas as both an academic and a practitioner.
“The Coase-Sandor Institute for Law and Economics at the University of Chicago will continue to support and expand Coase’s legacy in areas such as the environment, health care and education,” Sandor said.
Coase graduated from the London School of Economics with a B.Com. in economics in 1932 after spending his final year of studies in the United States on a Sir Ernest Cassel Traveling Scholarship. During that year abroad, he focused on the structure of American automotive industry and why some work was performed inside firms and some by the marketplace. These ideas became the basis of “The Nature of the Firm.”
Sir Arnold Plant, a British economist at the London School of Economics, was a major influence on Coase while he was a student there. Until meeting him in his senior year, Coase had never taken an economics course, only accounting and business. Plant introduced Coase to Adam Smith’s “invisible hand” and to the idea that competitive economic systems could be coordinated by the pricing system. In an autobiographical essay written for the Nobel organization, Coase writes that Plant “changed my life,” influencing his ideas, helping his achieve the Cassel Traveling Scholarship and setting him on the path to becoming an economist.
“My life has been a lucky chance at all points,” Coase said in a 2012 interview with the UChicago News Office.
Coase believed the incentives of private parties to resolve disputes in their own best interests, even if there needs to be adjudication by courts, should result in an efficient, mutually beneficial solution that is always preferable to government intervention. This theory, known as the Coase Theorem, has been applied to such issues as the sale of rights to broadcast on portions of the electromagnetic spectrum and the problem of pollution; while countless other economists have applied it to virtually every area of human activity.
“Ronald Coase discovered many of the foundational ideas of modern economics,” said Douglas Baird, the Harry A. Bigelow Distinguished Service Professor of Law, in a 2006 lecture on “Coase’s Journey.”
“When I teach Property, the first thing I cover on Day 1 is the ‘Coase Theorem,’ and the last thing we talk about on the final day is the same thing,” Schill said. “Ronald’s insights infused all of my scholarship and the scholarship of many, many professors throughout the world in countless fields.”
Coase reminisced about “The Nature of the Firm” in a 2009 video address recorded as part of a Law School celebration of his 100th birthday and the 50th anniversary of the publication of “The Problem of Social Cost.” In his unhurried, thoughtful cadence, Coase said he was surprised by how much it is cited since it was “little more than an undergraduate essay.”
He disputed his onetime characterization of firms as having diminishing rates of return as they grow larger, calling the growth a sociological issue, not an economic problem.
“I learned a great deal about how large organizations operate during my World War work when I was in the Cabinet office,” he said of his changed opinion. During World War II, Coase served as a statistician with the Central Statistical Office of the Offices of the British War Cabinet.
In his personal essay for Nobel, Coase described being invited to UChicago to defend a 1959 paper he had written on the Federal Communications Commission to a group of skeptical UChicago economists. In that evening gathering at Law School Professor Aaron Director’s home, he was able to persuade them to his view that as long as legal rights are properly defined, efficient solutions will prevail. He was asked to write an article for The Journal of Law and Economics, which Director had recently founded. The outcome was “The Problem of Social Cost.”
“Had it not been for the fact that these economists at the University of Chicago thought that I had made an error in my article on The Federal Communications Commission, it is probable that ‘The Problem of Social Cost’ would never have been written,” Coase said
George Stigler, PhD’38, an economist at UChicago and 1982 Nobel Prize winner, later wrote in his 1988 book, Memoirs of an Unregulated Economist, about that night: “We strongly objected to this heresy. Milton Friedman [UChicago economist and 1976 Nobel laureate] did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument, the vote went from 21 against and one for Coase to 21 for Coase.
“What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.”
Coase was hired at the UChicago Law School in 1964.
“It was the first law school, to my knowledge, that had an economist teaching full time,” said University Professor Gary Becker, the 1992 Nobel laureate in economics, at a luncheon in honor of Coase’s 100th birthday, according to The University of Chicago Magazine. Coase took over The Journal of Law and Economics after Director retired in 1965 until 1982, and according to Becker he “really made it into a major and influential journal.”
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