What Happened on Blackstone Avenue? Recovering the Origins of the Coase Theorem

Center for the History of Political Economy at Duke University Working Paper Series

44 Pages Posted: 16 Jul 2021 Last revised: 17 May 2023

See all articles by Steven G. Medema

Steven G. Medema

Duke University - Department of Economics

Date Written: May 9, 2023

Abstract

This paper revisits the path by which Coase developed the result now known as the Coase theorem, including the famous meeting at the home of Aaron Director during which Coase ‘converted’ a group of Chicago economists to his way of thinking. Drawing on published and archival sources, we discuss the challenges that Coase encountered in formulating his argument, particularly as regards the impact of transaction costs on his negotiation result, and illuminate the roles of Duncan Black and David Cavers in nudging Coase toward a theoretically valid result. Finally, we show that the Chicago economists’ ‘conversion’ was both less extensive than commonly believed and likely involved a their acceptance of a result that is both demonstrably incorrect and fundamentally different from that which Coase published in 1960.

Keywords: Ronald Coase, transaction costs, Coase theorem, externalities

JEL Classification: B21, B31, H23, K00, L1, Q50

Suggested Citation

Medema, Steven G., What Happened on Blackstone Avenue? Recovering the Origins of the Coase Theorem (May 9, 2023). Center for the History of Political Economy at Duke University Working Paper Series, Available at SSRN: https://ssrn.com/abstract=3886896 or http://dx.doi.org/10.2139/ssrn.3886896

Steven G. Medema (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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