Harry Coase (29 December 1910 – 2 September 2013) was a British-American economist and author. He was the Clifton R. Musser Professor of Economics emeritus at the University of Chicago Law School, where he was a prominent figure for much of his career. Coase was awarded the Nobel Memorial Prize in Economic Sciences in 1991 "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy." His work fundamentally reshaped the understanding of firms, markets, and law, and he is considered a foundational figure in the fields of New Institutional Economics and Law and Economics.

1. Early Life and Education
2. Academic Career
3. Major Economic Contributions
   • 3.1. "The Nature of the Firm" (1937)
     • 3.1.1. Transaction Costs
     • 3.1.2. Why Firms Exist
   • 3.2. "The Problem of Social Cost" (1960)
     • 3.2.1. Externalities and Property Rights
     • 3.2.2. The Coase Theorem
     • 3.2.3. Implications for Regulation
   • 3.3. Other Contributions
     • 3.3.1. The Lighthouse in Economics
     • 3.3.2. Theory of Public Utility Pricing
     • 3.3.3. The Market for Ideas
4. Methodology and Approach
5. Influence and Legacy
6. Later Life and Work
7. List of Major Works
8. See Also

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Ronald Coase was born in Willesden, a suburb of London, England. Both his parents worked for the Post Office. As a child, he had a weakness in his legs, requiring him to wear leg irons. He attended Kilburn Grammar School. Initially, he intended to study history but switched to commerce.

He studied at the London School of Economics (LSE), where he received his Bachelor of Commerce degree in 1932. During his undergraduate studies, he was influenced by Arnold Plant, a professor at LSE who introduced him to Adam Smith's "invisible hand" and the significance of the price system. A crucial experience was a Cassel Travelling Scholarship that allowed him to visit the United States in 1931–1932 to study the structure of American industries. It was during this trip, observing different firms and industries, that he began to formulate the ideas that would lead to his seminal article, "The Nature of the Firm."

After graduating from LSE, Coase held several academic positions:

• Dundee School of Economics and Commerce (1932–1934)
• University of Liverpool (1934–1935)
• London School of Economics (1935–1951), where he also served in government during World War II. He received his D.Sc. (Econ.) from the University of London in 1951.
• University at Buffalo (1951–1958)
• University of Virginia (1958–1964)
• University of Chicago Law School (1964–2013): This was his longest and most influential tenure. He joined the faculty and also became the editor of the Journal of Law and Economics from 1964 to 1982. Under his editorship, the journal became a leading publication in the burgeoning field of Law and Economics. He remained at Chicago until his death.

Coase's contributions, though contained in relatively few published articles, were exceptionally profound and influential.

This groundbreaking article, published when Coase was only 26, addressed a fundamental question that economics had largely overlooked: Why do firms exist? If markets are efficient allocators of resources, why isn't all production carried out by independent individuals contracting with each other in the market?

• 3.1.1. Transaction Costs: Coase's central insight was the concept of transaction costs. These are the costs associated with using the price mechanism (the market), such as:
  • Search and information costs (discovering relevant prices)
  • Bargaining and decision costs (negotiating contracts)
  • Policing and enforcement costs (ensuring contracts are fulfilled)
• 3.1.2. Why Firms Exist: Coase argued that firms emerge when the cost of organizing production within a hierarchical structure (the firm) is lower than the cost of carrying out those same transactions through the market. Within a firm, an entrepreneur directs resources by command, rather than through a series of market contracts, thereby economizing on certain transaction costs. The size of a firm is determined by the point at which the marginal cost of organizing one more transaction within the firm equals the marginal cost of carrying it out in the market or in another firm.

This equally influential article challenged the traditional Pigouvian approach to externalities (harmful or beneficial effects of production or consumption on third parties, like pollution).

• 3.2.1. Externalities and Property Rights: Coase argued that externalities are reciprocal problems. For example, pollution from a factory harms nearby residents, but stopping the pollution harms the factory. The question is not simply who is "to blame" but how to achieve the most efficient outcome. He emphasized the crucial role of clearly defined and enforceable property rights in resolving externality problems.
• 3.2.2. The Coase Theorem: While Coase himself never explicitly formulated it as a "theorem," this is the name given to his central insight from this paper. The Coase Theorem (in its most common interpretation) states that:
  • If property rights are well-defined and transaction costs are zero (or sufficiently low), then private bargaining between affected parties will lead to an efficient allocation of resources, regardless of the initial assignment of property rights. The outcome will be the same (in terms of efficiency, though not necessarily distribution) whether the polluter has the right to pollute or the resident has the right to clean air, because the parties can bargain to achieve the outcome that maximizes their joint value.
• 3.2.3. Implications for Regulation: The Coase Theorem suggests that government intervention (like Pigouvian taxes or direct regulation) may not always be necessary or the most efficient way to deal with externalities. If transaction costs are low, private solutions can emerge. However, Coase also stressed that when transaction costs are high, the initial assignment of property rights does matter for efficiency, and government intervention might be justified. His work highlighted the importance of considering transaction costs when designing regulatory policies.

In this article, Coase challenged the long-held view (popularized by John Stuart Mill and Paul Samuelson) that lighthouses were a classic example of a "public good" that could only be provided by the government due to non-excludability and non-rivalry. By examining the historical experience of lighthouses in Britain, Coase showed that many were, in fact, privately financed and operated for profit, often through government-granted rights to collect tolls from ships. This demonstrated the importance of empirical investigation over a priori theorizing.

Coase wrote on the pricing policies of public utilities, advocating for marginal cost pricing and critiquing traditional rate-of-return regulation.

He also applied his economic reasoning to the "market for ideas," arguing for free competition in the dissemination of information and opinions, similar to the arguments for free markets in goods and services.

Coase's approach to economics was distinctive:

• Real-World Focus: He emphasized the importance of studying real-world institutions and economic phenomena, rather than relying solely on abstract, "blackboard" economics.
• Clarity and Simplicity: His writing was known for its clarity, directness, and lack of unnecessary mathematical formalism.
• Challenging Conventional Wisdom: He had a penchant for questioning widely accepted economic doctrines and assumptions.
• Emphasis on Institutions: His work highlighted the crucial role of institutions – such as firms, markets, property rights, and the legal system – in shaping economic outcomes.

• Ronald Coase is considered one of an handful of the most influential economists of the 20th century, despite his relatively small number of published papers.
• New Institutional Economics: "The Nature of the Firm" is a foundational text of New Institutional Economics, which focuses on the role of institutions and transaction costs in economic activity.
• Law and Economics: "The Problem of Social Cost" is a cornerstone of the field of Law and Economics, which applies economic analysis to legal rules and institutions.
• Regulatory Policy: His work has profoundly influenced thinking about government regulation, externalities, and property rights.
• Nobel Prize: His 1991 Nobel Prize recognized the far-reaching impact of his insights.
• His editorship of the Journal of Law and Economics transformed it into a leading academic journal and a central platform for the development of these new fields.

Even after his formal retirement, Coase remained active in research and writing. In his later years, he became particularly interested in the rise of the Chinese economy and co-authored How China Became Capitalist (2012) with Ning Wang. He also established the Ronald Coase Institute to promote research in New Institutional Economics.

Ronald Coase died in Chicago on September 2, 2013, at the age of 102.

Coase's reputation rests primarily on a few exceptionally influential articles, but he also authored books and other essays:

• "The Nature of the Firm" (Economica, Vol. 4, No. 16, November 1937, pp. 386–405)
• "The Marginal Cost Controversy" (Economica, Vol. 13, No. 51, August 1946, pp. 169–182)
• British Broadcasting: A Study in Monopoly (1950)
• "The Problem of Social Cost" (Journal of Law and Economics, Vol. 3, October 1960, pp. 1–44)
• "The Lighthouse in Economics" (Journal of Law and Economics, Vol. 17, No. 2, October 1974, pp. 357–376)
• The Firm, the Market, and the Law (1988) – A collection of his major essays, including "The Nature of the Firm" and "The Problem of Social Cost," along with new introductory and connecting material.
• Essays on Economics and Economists (1994)
• How China Became Capitalist (2012, with Ning Wang)

• New Institutional Economics
• Law and Economics
• Transaction cost
• Coase Theorem
• Property rights
• Externality
• University of Chicago Law School
• Chicago school of economics (though Coase's relationship with it was complex)
• Oliver E. Williamson
• Douglass North