Economist Coase Wins Nobel Prize

By DONALD WOUTAT

Oct. 16, 1991 12 AM PT

TIMES STAFF WRITER

An 81-year-old economist from the University of Chicago, whose Depression-era tour of American factories led him to discover that it costs money to bargain over any transaction, was awarded the Nobel Prize in economics on Tuesday.

The theories developed by British-born Ronald Coase, a professor emeritus at the university’s law school, were described by the Nobel committee as the economic equivalent of discovering new particles of matter.

Colleagues and experts in the relatively recent discipline of law and economics, a field that owes its existence to Coase, portray him as a charming, modest, absent-minded and towering scholar whose Nobel award was long overdue.

“He will probably be the only person in the field of economics who is surprised he won the Nobel Prize, if he even knows yet,” said Douglas Baird, Coase’s successor as director of the school’s program in law and economics.

Late Tuesday, officials of the Royal Swedish Academy of Sciences in Stockholm were still trying to locate Coase to notify him of his $1-million award. Friends said he was vacationing in the south of France.

Coase is credited with forging the concept of transaction costs--in addition to the more obvious costs of production and transportation--in understanding the way firms operate within the economic system.

Until then, traditional microeconomic theory was incomplete, the Nobel committee said.

Transaction costs include “the cost of bargaining or dickering” over a contract or other deal, Baird said. “That includes my time and your time and, God help us, if we have to hire a lawyer, the cost of his time.”

“Coase may be said to have identified a new set of ‘elementary particles’ in the economic system,” the Nobel committee said.

Born in Middlesex, England, in 1910, Coase was a graduate student in the London School of Economics in the 1930s when he visited factories across the United States to study the way firms are organized.

He visited General Motors, Ford, Union Carbide and other major U.S. industrial companies to investigate such issues as why a company would buy products from other firms or, as GM increasingly did, produce them internally.

He found that the less haggling there is over a deal, the more efficient the process is economically. That helped to explain why people created small firms, large corporations and other entities to conduct their work.

The research led to a 1937 article, “The Nature of the Firm,” whose importance wasn’t recognized until the 1960s.

“Nobody understood it, apparently,” said Richard Fielding, director of the Law and Economics Center at George Mason University Law School in Arlington, Va.

Coase built on this work over the decades, and his findings are being used today by economists to analyze such organizational systems as Japan’s controversial Keiretsu system of interlocking relationships among companies and their suppliers, Fielding said.

Coase taught at the University of Buffalo and the University of Virginia before moving to the University of Chicago Law School in 1964, where he edited the Journal of Law & Economics for many years.

He was one of the first economists at an American law school. Coase retired in 1981 but continues to conduct seminars.

An American citizen since the 1950s, Coase is said to retain a distinctly British accent and manner and is seldom without an umbrella.

Baird described him as “very charming, unassuming, witty and modest.”

He is the 13th economist from the University of Chicago to win a Nobel since the prize in “economic science” was established in 1968.

Ronald Coase

Born: Coase was born in Middlesex, England, in 1910. He is now an American citizen.

Career: Coase taught at the University of Chicago from 1964 to 1981, when he retired.

He taught at the University of Virginia from 1958-64 and at the University of Buffalo from 1951-58.

He taught at the London School of Economics from 1935 to 1951.

The work: He brought to economic theory concepts of property rights and “transaction costs,” the costs that buyers and sellers incur when they meet and define their relationships through contracts.

Citation: Coase “succeeded in specifying principles for explaining the institutional structure of the economy, thereby also making new contributions to our understanding of the way the economy functions,” the Nobel Committee said.

The Award: $1 million.

Source: Times Wire Services

Past Winners of Economics Prize Winners of Nobel Memorial Prize in Economics since 1971: 1991: Ronald Coase, United States (British-born)

1990: Harry M. Markowitz, U.S.

1990: William F. Sharpe, U.S.

1990: Merton Miller, U.S.

1989: Trygve Haavelmo, Norway

1988: Maurice Allais, France

1987: Robert M. Solow, U.S.

1986: James M. Buchanan Jr., U.S.

1985: Franco Modigliani, U.S.

1984: Richard Stone, Britain