Before the work of Ronald Coase, economists argued that externalities-unpriced benefits or costs-constituted the main exception to the rule that Adam Smith's invisible hand will efficiently allocate resources. Coase showed that externalities may or may not require a government solution, depending on the institutional setting of the problems and the size of transaction costs. Moreover, even in the absence of externalities, market transactions require low transaction costs. Firms exist to economize on those costs. In shifting the terms of the debate, Coase single-handedly moved economics from presuming specific roles for government action to a more neutral position requiring detailed analysis. In this article, Roy Ruffin explains Coase's contribution to understanding the role of government.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: