Of Coase

["Max B. Sawicky" <sawicky@xxxxxxxxxxxxxxxx>]

Rereading The Nature of the Firm . . .

Coase is unradical in the sense of recognizing hierarchy
but not power.  There is an efficiency rationale for
the size or scope of a firm -- economizing on a bundle
of transactions -- but this does not answer the question,
who gets to be 'coordinator'?  Coase takes expertise
out of it, debunking Frank Knight's dichotomy between
the employer, who is inclined to take risk and knows
howw to handle it, and workers who are the opposite.
Coase says the firm can always hire an advisor to
foresee the uncertain.  All that's left is the
coordinating function.  (Financial risk is a
different matter not treated in this lit.)

Power explains who is assigned (or self-assigned)
the task of coordinator.  Power derives from ownership
of capital.

Capital permits the owner, perhaps thru an agent,
to engage workers without capital into implicit
contracts reflecting the bargaining power of the
owner.  Workers might do better with individual,
specific contracts (lacking a union mechanism) than
with the employee relationship, but lacking capital
obliges them to work for someone else.

The firm needs a coordinator, but Coase fails to
explain why (s)he isn't hired by the workers.

mbs