If you’re into economics and want to learn more, read these interesting economic articles by economists. Coase’s 1937 article has many subfields within economics, and his ideas have shaped the field in numerous ways. Alchian’s profit-seeking firm model and the information technology revolution are a few examples. This article has influenced just about everything in industrial organization since. But why is Coase’s 1937 article so interesting?
Coase’s 1937 article
The premise of Coase’s 1937 article on economics is that we should try to settle disputes between parties on a voluntary basis and should intervene only when property rights are too weak or transaction costs are too high. It may sound like laissez-faire thinking, but this economist was a pragmatic thinker. He spent most of his career teaching at Chicago University and he firmly believed that economics is a science, and that government interventions should be kept to a minimum.
Ronald Coase’s first essay on economics appeared in Dundee, Scotland, in 1932. He had previously spent a year in America. It took another five years for the “nature of the firm” to appear in print. Another of Coase’s famous articles, “The Problem of Social Cost,” was published five years later, in 1960. Coase argued that private bargaining can solve social problems like pollution as long as property rights are clearly defined. In other words, if property rights are clearly defined, transaction costs are relatively low.
Alchian’s model of profit-seeking firms
Alchian’s contribution to the economics literature was an evolutionary perspective on firm behavior that included the idea of the motivation to maximize profits. The assumption that firms always seek to maximize profits has been a controversial topic since it contradicts the belief that all firms can maximize their profit. This article argues that inefficient firms tend to survive and remain profitable. To see how Alchian’s model works in practice, read the article in its entirety.
The fundamental argument of Alchian’s theory is that the market structure will select for profit- seeking firms and weed out those that do not. This means that, in the long run, profit-maximizing firms will dominate the market. Although it is important to note that Alchian’s theory does not predict which firms will eventually become dominant, it provides a framework for understanding the evolution of firms and how they can influence future market conditions.
Alchian’s model of information technology revolution
Throughout the early part of the 21st century, supporters of the Information Revolution acknowledged that the era was still in its early stages, but they questioned whether it would bring the same level of social change as the Industrial Revolution. After all, the Industrial Revolution led to more change in two centuries than all of human history combined. What is the information economy and how will it change society? How can it be harnessed for societal good?
The rise of information technology can change the distribution of private information and the structure of capitalism, as well as the rights and obligations of individuals and organisations. Hayek famously discussed the distribution of private information and the impact it has on property rights. Information cannot be shared in a free way, and thus the owners of this private information must accept low compensation for its illiquidity. The same logic applies to information about the nature of institutions and the rights of individuals.