Inside the Coasean Firm: Competence as a Random Variable
Richard A. Epstein
New York University School of Law; Stanford University - Hoover Institution on War, Revolution and Peace; University of Chicago - Law School
March 12, 2010
University of Chicago Law Review, Forthcoming
U of Chicago Law & Economics, Olin Working Paper No. 515
The work of Ronald Coase is notable for two primary reasons. First, it introduced the notion of transaction costs to explain the formation and maintenance of firms, Second, it advanced our understanding of the critical topic of social costs. Yet, while transaction costs are key to understanding why firms are organized, they do not offer a complete explanation of how they are organized. A richer account of the problem properly stresses that differences in individual levels of competence, as well as individual variations in temperament and taste, explain why, for example, some firms are organized as partnerships and others as straight employment arrangements, with many permutations in between. Understanding differential levels of competence also helps to explain issues in areas from employment discrimination law to capital markets and tort liability.
Number of Pages in PDF File: 25working papers series
Date posted: March 15, 2010
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