Hostname: page-component-8448b6f56d-42gr6 Total loading time: 0 Render date: 2024-04-18T23:38:48.834Z Has data issue: false hasContentIssue false
  • English
  • Français

Costly institutions as substitutes: novelty and limits of the Coasian approach

Published online by Cambridge University Press:  27 May 2014

UGO PAGANO  and
MASSIMILIANO VATIERO
UGO PAGANO*
Affiliation:
Department of Economics and Statistics, University of Siena, Siena, Tuscany, Italy
MASSIMILIANO VATIERO*
Affiliation:
“Brenno Galli” Chair of Law and Economics, Institute of Law (IDUSI) and Institute of Economics (IDEP), Università della Svizzera italiana, Lugano, Ticino, Switzerland
*
*Email: pagano@unisi.it
**Email: vatierom@usi.ch
Get access Rights & Permissions [Opens in a new window]

Abstract

One of the main contributions of Ronald H. Coase was to demonstrate how mainstream economics was based on a contradictory amalgam of costly physical inputs and free institutional resources, and to give origin to the economics of institutions: each institution is a mode of allocation and organization of economic resources that is to be investigated. In particular, none of the institutions (including the market) is a free lunch. The Coasian approach regards institutions as costly substitutes and provides a fundamental starting point for comparative institutional analysis. However, Coase neglected two issues deriving from the observation that institutions are not cost-free. First, when institutions are costly, one should not only consider their possible substitutes but also how complementary institutions affect their costs, as well as the costs of the possible institutional substitutes. Second, the economic analysis should also take into account that the transition from one institutional setup to another cannot occur in costless meta-institutions. The initial conditions may substantially affect the final institutional arrangements. Both the novelty of Coase's approach and its limits were grossly undervalued. In particular, the costly institutions assumption requires a view of economics as a historical discipline.

Type
Research Article
Information
Journal of Institutional Economics , Volume 11 , Issue 2: Ronald H. Coase Memorial Issue , June 2015 , pp. 265 - 281
Copyright
Copyright © Millennium Economics Ltd 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amable, B. (2003), The Diversity of Modern Capitalisms, Oxford: Oxford University Press.CrossRefGoogle Scholar
Aoki, M. (2001), Toward a Comparative Institutional Analysis, Cambridge, MA: MIT Press.Google Scholar
Ayres, I. and Talley, E. (1995), ‘Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade’, Yale Law Journal, 104: 1027–1117.Google Scholar
Belloc, M. and Pagano, U. (2013), ‘Politics–Business Co-Evolution Paths: Workers’ Organization and Capitalist Concentration’, International Review of Law and Economics, 33: 23–36.CrossRefGoogle Scholar
Bowles, S. (1998), ‘Endogenous Preferences: The Cultural Consequences of Markets and other Economic Institutions’, Journal of Economic Literature, 36 (1): 75–111.Google Scholar
Bowles, S. (2004) Microeconomics. Behaviour, Institutions and Evolution, Princeton, NJ: Princeton University Press.Google Scholar
Bowles, S. and Gintis, H. (1993), ‘The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy’, Journal of Economic Perspectives, 7 (1): 83–102.CrossRefGoogle Scholar
Braverman, H. (1974), Labour and Monopoly Capital: The Degradation of Work in the Twentieth Century, New York: Monthly Review Press.Google Scholar
Buchanan, J. M. and Tullock, G. (1962), The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann Arbor: University of Michigan Press.Google Scholar
Calabresi, G. (1968), “Transaction Costs, Resource Allocation and Liability Rules – A Comment”, Journal of Law and Economics, 11 (1): 67–73.Google Scholar
Calabresi, G. (1991), ‘The Pointlessness of Pareto: Carrying Coase Further’, The Yale Law Journal, 100 (5): 1211–1237.Google Scholar
Coase, R. H. (1937), ‘The Nature of the Firm’, Economica, 4 (16): 386–405.CrossRefGoogle Scholar
Coase, R.H. (1959), ‘The Federal Communications Commission’, Journal of Law and Economics, 2 (1): 1–40.CrossRefGoogle Scholar
Coase, R. H. (1960) ‘The Problem of Social Cost’, Journal of Law and Economics, 3 (October): 1–44.CrossRefGoogle Scholar
Coase, R. H. (1972), ‘Industrial Organization: A Proposal for Research’, in Fuchs, V. R. (ed.), Policy Issues and Research Opportunities in Industrial Organization, New York: National Bureau of Economic Research.Google Scholar
Coase, R. H. (1978), ‘Economics and Biology: A Comment’, American Economic Review 68: 244–245.Google Scholar
Coase, R. H. (1981), ‘The Coase Theorem and Empty Core: A Comment’, Journal of Law and Economics, 24 (1): 183–187.CrossRefGoogle Scholar
Coase, R. H. (1988a), ‘The Firm, the Market and the Law’, in Coase, R.H. (ed.), The Firm, the Market and the Law, Chicago: University of Chicago Press, pp. 1–31.Google Scholar
Coase, R. H. (1988b), ‘Notes on the Problem of Social Cost’, in Coase, R. H. (ed.), The Firm, the Market and the Law, Chicago: University of Chicago Press, pp. 157–185.Google Scholar
Coase, R. H. (1992), ‘Autobiography’, in Frängsmyr, T. (ed.), Les Prix Nobel. The Nobel Prizes 1991, Stockholm: Nobel Foundation.Google Scholar
Commons, J. R. (1924), Legal Foundations of Capitalism, Clifton: Augustus M. Kelley Publishers.Google Scholar
Demsetz, H. (1967), “Toward a Theory of Property Rights”, American Economic Review, 57 (2): 347–359.Google Scholar
Dugger, W. (1992), ‘An Evolutionary Theory of the State and the Market’, in Dugger, W., Waller, W. (eds.), The Stratified State, Radical Institutionalist Theories of Participation and Duality, London: M.E. Sharp.Google Scholar
Eldredge, N. and Gould, S. J. (1972), ‘Punctuated Equilibria: An Alternative to Phyletic Gradualism’, in Schopf, T. J. M. (ed.), Models in Paleobiology, San Francisco, CA: Freeman Cooper & Co, pp. 82–115.Google Scholar
Fiorito, L. and Vatiero, M. (2011), ‘Beyond Legal Relations. Wesley Newcomb Hohfeld's Influence on American Institutionalism’, Journal of Economic Issues, 45 (1): 199–222.Google Scholar
Gneezy, A. and Rustichini, A. (2000), ‘A Fine is a Price’, Journal of Legal Studies, 29 (1): 1–17.CrossRefGoogle Scholar
Hall, P. A. and Gingerich, D. W. (2009), ‘Varieties of Capitalism and Institutional Complementarities in the Political Economy’, British Journal of Political Science, 39 (3): 449–482.CrossRefGoogle Scholar
Hall, P. A. and Soskice, D. (eds.) (2001), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press.Google Scholar
Heinrich, J., Bowles, S., Boyd, R., Camerer, C. F., Fehr, E., Gintis, H., and McElreath, R. (2001), ‘In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies’, American Economic Review, 91 (2): 73–78.Google Scholar
Hodgson, G. M. (1988), Economics and Institutions: A Manifesto for a Modern Institutional Economics, Cambridge, UK: Polity Press.Google Scholar
Hodgson, G. M. (1993), Economics and Evolution, Oxford: Blackwell Publishers.Google Scholar
Hodgson, G. M. (2001) How Economics Forgot History, London and New York: Routledge.CrossRefGoogle Scholar
Irti, N. (1994), L’ordine Giuridico del Mercato, Laterza: Bari.Google Scholar
La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (1999), ‘Corporate Ownership Around the World’, Journal of Finance, 54: 471–517.CrossRefGoogle Scholar
Medema, G. S. (2009), The Hesitant Hand, Princeton, NJ: Princeton University Press.Google Scholar
Medema, G. S. and Zerbe, R. O. Jr. (1999), ‘The Coase Theorem’, in Bouckaert, B. and De Geest, G. (eds.), The Encyclopedia of Law and Economics, Aldershot, UK: Edward Elgar Publishing.Google Scholar
Milgrom, P. and Roberts, J. (1990), ‘Rationability, Learning and Equilibrium in Games with Strategic Complementarities’, Econometrica, 58: 1255–1277.CrossRefGoogle Scholar
Nicita, A. and Pagano, U. (2008), ‘Law and Economics in Retrospect’, in Brosseau, E. and Glachant, J.-M. (eds.), New Institutional Economics. A Guidebook, Cambridge: Cambridge University Press, pp. 409–425.Google Scholar
North, D. C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press.Google Scholar
Olson, M. (1982), The Rise and the Decline of Nations, New Haven, CT: Yale University Press.Google Scholar
Ostrom, E. (1990), Governing the Commons: The Evolution of Institutions for Collective Action, New York: Cambridge University Press.Google Scholar
Pagano, U. (2011), ‘Interlocking Complementarities and Institutional Change’, Journal of Institutional Economics, 7 (3): 373–392.CrossRefGoogle Scholar
Pagano, U. (2012), ‘No Institution is a Free Lunch: A Reconstruction of Ronald Coase’, International Review of Economics, 59 (2): 189–200.Google Scholar
Pagano, U. and Rowthorn, R. (1994), ‘Ownership, Technology and Institutional Stability’, Structural Change and Economic Dynamics, 5 (2): 221–243.CrossRefGoogle Scholar
Posner, R. A. (1987), ‘The Law and Economic Movement’, American Economic Review, 77: 1–13.Google Scholar
Posner, R. A. (1993), ‘Ronald Coase and Methodology’, Journal of Economic Perspectives, 7: 195–210.Google Scholar
Roe, M. J. (2003), Political Determinants of Corporate Governance: Political Context, Corporate Impact, Oxford: Oxford University Press.Google Scholar
Samuelson, P. A. (1947), ‘Foundations of Economic Analysis’, in Harvard Economic Studies, vol. 80, Cambridge: Harvard University Press.Google Scholar
Samuelson, P. A. (1974), ‘Complementarity: An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory’, Journal of Economic Literature, 12 (4): 1255–1289.Google Scholar
Vatiero, M. (2009), Understanding Power. A ‘Law and Economics’ Approach, Saarbrucken, Germany: VDM-Verlag.Google Scholar
Vatiero, M. (2013), ‘Positional Goods and Robert Lee Hale's Legal Economics’, Journal of Institutional Economics, 9 (3): 351–362.Google Scholar
Williamson, O. E. (1975), Markets and Hierarchies: Analysis and Anti-trust Implications. A Study in the Economics of Internal Organization, New York: Free Press.Google Scholar
Williamson, O. E. (1989), ‘Review of ‘The Firm, the Market, and the Law’ by R.H. Coase’, California Law Review, 77: 223–231.Google Scholar