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Inside the Coasean Firm: Why Variations in Competence and Taste Matter

Listed author(s):
  • Richard A. Epstein
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    Ronald Coase's signal achievement relates to the role of transactions costs in two contexts: the formation and maintenance of the firm and the systematic analysis of social costs. These transaction-cost explanations, however, do not offer a complete explanation of the variations observed in the internal structures of firms, which are elucidated by noting the irreducible role of variations in individual competence, temperament, and taste in explaining both why firms are formed and how they are structured. Thus, some firms are organized as partnerships and others as straight employment arrangements, with many permutations in between. Sometimes these differences are driven by tax and regulatory considerations that Coase well understood, but these differences remain prominent even in wholly unregulated markets. Understanding the internal construction helps explain the difficulties faced by regulation in areas as diverse as employment discrimination law, capital markets, and tort liability.

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    File URL: http://dx.doi.org/10.1086/662187
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    File URL: http://dx.doi.org/10.1086/662187
    Download Restriction: Access to the online full text or PDF requires a subscription.

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    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 54 (2011)
    Issue (Month): S4 ()
    Pages: 41-62

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    Handle: RePEc:ucp:jlawec:doi:10.1086/662187
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    4. Fuchs, Victor R, 1989. "Women's Quest for Economic Equality," Journal of Economic Perspectives, American Economic Association, vol. 3(1), pages 25-41, Winter.
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    7. Casadesus-Masanell, Ramon & Spulber, Daniel F, 2000. "The Fable of Fisher Body," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 67-104, April.
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