Ronald Coase's 'The Problem of Social Cost'

Campbell, Ian David (2016) Ronald Coase's 'The Problem of Social Cost'. The University of Queensland Law Journal, 35 (1). pp. 75-98. ISSN 0083-4041

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Abstract

The most cited law review article ever published, the late Ronald Coase's 'The Problem of Social Cost' is one of the foundations of the 'law and economics' movement that has come to play such an important role in US law schools, and therefore in legal education and research worldwide. It is principally for writing this article that Coase is regarded as one of the 'founding fathers', if not the founding father, of law and economics. However, this aspect of TPoSC will not be discussed here. In part this is because I have had my say on law and economics in many previous pieces of work, the latest of which, focused on Coase's treatment of case law in TPoSC, will have appeared in print only shortly before this article itself. But, more positively, like Coase, I believe that the principal contribution of TPoSC has been, not in founding the sub-discipline of law and economics, but in improving our understanding of economic action as such, though it has indeed largely done this by casting new light on the importance of law and regulation for such action. The effect of this has by no means been confined to theoretical debate. TPoSC has been at the core of the contribution of the 'Second Chicago School' of economics to the 'neoliberal revolution', with Coase being one of a handful of academics whose contribution to that revolution was exceeded only by Milton Friedman. In sum, TPoSC played an essential part in the Kuhnian paradigm shift in our understanding of the regulation of economic action that has had so marked effect on economic policy since the 1970s.