Coase's Paradox and the Inefficiency of Permanent Strike Replacements

94 Pages Posted: 29 Jan 2003

See all articles by Seth D. Harris

Seth D. Harris

Cornell Institute for Public Affairs

Date Written: January 23, 2003


This article considers the relationship between the National Labor Relations Act and Coase's Theorem. It concludes that the Coase Theorem cannot be used to justify and explain interpretations of the National Labor Relations Act. In particular, the article argues that the Coase Theorem cannot explain the rule derived from NLRB v. Mackay Radio Corporation permitting employers to permanently replace striking workers without violating the NLRA.

The article uses internal labor markets theory to reconsider a prominent Coasean analysis of the Mackay Radio doctrine. This article disagrees with that analysis' conclusion that Mackay Radio established an efficiency-enhancing rule of law. Since the Mackay Radio doctrine is an important and influential rule of American labor law, the Coase Theorem's inability to explain and justify the doctrine weakens its claim to relevance in NLRA interpretations.

This article also takes a broader approach to the relationship between the NLRA and the Coase Theorem building on new research from noted Princeton labor economist Alan Krueger and Alexandre Mas. Krueger and Mas established an association between Bridgestone/Firestone's hiring of permanent replacement workers during a 1995 strike at its Decatur, Illinois facility and the production of defective tires (principally tires used on Ford Explorers) that have hurt and killed consumers. This article argues that "secondary externalities" like the harm caused to Bridgestone/Firestone's customers must be included in any Coasean efficiency calculation. Taking secondary externalities into account, however, will frequently and necessarily result in the Coase Theorem's efficiency goal conflicting with the NLRA's command that employers and unions, not judges or the National Labor Relations Board, determine the substance of collective bargaining agreements. So, in this more fundamental sense, the Coase Theorem and the NLRA are incompatible.

Keywords: labor, Labor Law, unions, strikes, Coase, Coase's Theorem, Transaction cost economics, internal labor markets, labor economics, strike replacements, National Labor Relations Act, NLRA

Suggested Citation

Harris, Seth D., Coase's Paradox and the Inefficiency of Permanent Strike Replacements (January 23, 2003). Available at SSRN: or

Seth D. Harris (Contact Author)

Cornell Institute for Public Affairs ( email )

294 Caldwell Hall
Ithaca, NY 14853-2602

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