Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase (Dec 4-5, 2009) (Photo credit: k-ideas)
As part of pursuing my “business detox” research agenda, I have tried to pay due attention to the work of economist Ronald Coase who developed the first theories on “why firms exist”. As The Economist newspaper explains in their recent obituary for Ronald Coase:
As he watched American car plants in action, he realised that the existence of the firm compensated for a critical flaw in the price-setting mechanism. In the real world it is often costly for buyer and seller to arrive at a final price. “Transaction costs”, like the need to negotiate or draw up contracts, prevent the price mechanism from working smoothly. Firms would exist, he reckoned, when it was cheaper and easier to co-ordinate activity within a centrally planned organisation than to spell out contract details for every step in the production process.
Of course, our modern technological world is rapidly driving down transaction costs and making outsourcing of all parts of the firm much more cost-effective and do-able than ever. Hence, the end of the traditional employee-centric firm as we know it today…
As my own nod to Ronald Coase and his brilliant insights into why firms exist, I have reprinted the 7th September 2013 obituary from The Economist in its entirety below. Rest in peace, Mr. Coase. Continue reading