IDEAS home Printed from
   My bibliography  Save this article

R. H. Coase and the Neoclassical Model of the Economic System


  • Harold Demsetz


R. H. Coase makes two claims in his most important articles: (1) a positive cost of using the price system is needed to explain the existence and importance of firms, and, therefore, neoclassical theory, which treats the price system as free to all, offers no explanation for the existence of firms, and (2) neoclassical theory's important deduction--that a private ownership, competitive economy allocates resources efficiently--is valid only if there is no cost to the provision and use of a price system. I reject both claims in this article and go on to argue that the assumptions that underlie neoclassical theory's perfect competition model are appropriate to the purpose for which it is intended; namely, to understand resource allocation in a private, decentralized economic system. The assumptions that underlie Coase's reasoning serve a different purpose--to understand organization within firms.

Suggested Citation

  • Harold Demsetz, 2011. "R. H. Coase and the Neoclassical Model of the Economic System," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 7-13.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/664179

    Download full text from publisher

    File URL:
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL:
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Harold Demsetz, 1968. "The Cost of Transacting," The Quarterly Journal of Economics, Oxford University Press, vol. 82(1), pages 33-53.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:doi:10.1086/664179. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.