The theory of the firm: Coase call
If markets are so good at directing resources, why do firms exist?
The first in our series on big economic ideas.
One morning, an economist went to buy a shirt.
The one he chose was a marvel of global production.
It was made in Malaysia using German machines.
The cloth was woven from Indian cotton grown from seeds developed in America.
The collar lining came from Brazil; the artificial fibre from Portugal.
Millions of shirts of every size and colour are sold every day, writes Paul Seabright, the shirt-buying economist, in his 2004 book, “The Company of Strangers”.
每天都有数百万件各种型号和花色的这种衬衫被售出，这位购买衬衫的经济学家保罗·西布莱特( Paul Seabright)在他2004年的《陌生人的团队》(The Company of Strangers)一书中写道。
No authority is in charge.
The firms that make up the many links in the chain that supplied his shirt had merely obeyed market prices.
Throwing light on the magic of market co-ordination was a mainstay of the “classical” economics of the late-18th and 19th centuries.
Then, in 1937, a paper published by Ronald Coase, a British economist, pointed out a glaring omission.
The standard model of economics did not fit with what goes on within companies.
When an employee switches from one division to another, for instance, he does not do so in response to higher wages, but because he is ordered to.
The question posed by Coase was profound, if awkward for economics: why are some activities directed by market forces and others by firms?
His answer was that firms are a response to the high cost of using markets.
It is often cheaper to direct tasks by fiat than to negotiate and enforce separate contracts for every transaction.
Such “exchange costs” are low in markets for standardised goods, wrote Coase.