Coase and Transaction Costs Reconsidered: The Case of the English Lighthouse System

European Journal of Law and Economics, vol. 48, no. 3 (2019): 331-349

30 Pages Posted: 12 Aug 2019 Last revised: 13 Nov 2019

See all articles by Rosolino Candela

Rosolino Candela

George Mason University - Mercatus Center

Vincent Geloso

Bates College; University of Western Ontario - King's University College

Date Written: August 6, 2019

Abstract

What is Coase’s understanding of transaction costs in economic theory and history? Our argument in this paper is twofold, one theoretical and the other empirical. First, Coase regarded positive transaction costs as the beginning, not the end, of any analysis of market processes. From a Coasean perspective, positive transaction costs represent a profit opportunity for entrepreneurs to erode such transaction costs, namely by creating gains from trade through institutional innovation. We demonstrate the practical relevance of entrepreneurship for reducing transaction costs by revisiting the case of the lightship at the Nore, an entrepreneurial venture which had arisen to erode the transaction costs associated with regulation by Trinity House, the main lighthouse authority of England and Wales. By intervening into the entrepreneurial market process, Trinity House would pave the way for the nationalization of the entire English and Welsh lighthouse system. By connecting our theoretical contribution with an empirical application, we wish to illustrate that Coase’s theoretical understanding of transaction costs is inherently linked to an empirical analysis of market processes.

Keywords: Ronald Coase, transaction costs, lighthouses, lightships

JEL Classification: B25, B41, H41, H44

Suggested Citation

Candela, Rosolino and Geloso, Vincent, Coase and Transaction Costs Reconsidered: The Case of the English Lighthouse System (August 6, 2019). European Journal of Law and Economics, vol. 48, no. 3 (2019): 331-349, Available at SSRN: https://ssrn.com/abstract=3433213

Rosolino Candela (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Vincent Geloso

Bates College ( email )

Department of Economics
Lewiston, ME
United States

University of Western Ontario - King's University College ( email )

266 Epworth Avenue
London, Ontario N6A 2M3
Canada

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