The Coase Theorem and a Coasian construction economics and management research agenda1

1. This article is a sequel to the work by the first author ‘“The problem of social cost”; the Coase theorem and externality explained: using simple diagrams and examples to illustrate the role of land use planning in tackling externalities’, (Lai forthcoming) and a paper on planning research by the first author and Hung, ‘The inner logic of the Coase theorem and a Coasian planning research agenda’ to appear Environment and Planning B: Planning and Design (Lai and Hung, forthcoming).

Abstract

This paper seeks to construct an empirical research agenda based on transaction cost reasoning informed by the Coase Theorem. It explains why the Coase Theorem has not been well received in the area of construction economics and management, as revealed by the relevant bibliometrics; develops a transaction cost‐based research agenda for this arena based on the corollaries of the invariant version and optimality version of the Coase Theorem; and maps the current research endeavours that fall into that agenda. It has been explained that the Coase Theorem was based on Coase's 1960 article, ‘The problem of social cost’, and is not only compatible with, but also more general than, Coase's theory of the firm offered in his 1937 paper, ‘The nature of the firm’. Hence, the ‘two Coases’ characterization, which suggests a dichotomy pro‐organization/regulation stance versus a pro‐free market stance, is fallacious.

Keywords:

• Coase Theorem
• transaction cost
• property rights
• bibliometrics
• construction economics and management

Acknowledgements

The authors are indebted to five anonymous referees for their useful comments and suggestions. All faults are entirely the authors'. They also acknowledge the kind permission by Environment and Planning B for using the form of the main propositions and matrices adopted in Lai and Hung (forthcoming) for ordering the content of this work.

Notes

1. This article is a sequel to the work by the first author ‘“The problem of social cost”; the Coase theorem and externality explained: using simple diagrams and examples to illustrate the role of land use planning in tackling externalities’, (Lai forthcoming) and a paper on planning research by the first author and Hung, ‘The inner logic of the Coase theorem and a Coasian planning research agenda’ to appear Environment and Planning B: Planning and Design (Lai and Hung, forthcoming).

2. Note that Stigler abandoned his original 1966 formulation in his 1987 work, replacing it with one that Coase endorsed (1988), and which this paper adopted. Moreover, there are many versions of the Coase Theorem. Cheung argued that the most important version is the one that stated that ‘the delimitation of rights is an essential preclude to market transactions’ (Cheung, 1991). This is an idea found in Coase's paper, ‘The Federal Communications Commission’ (1959, p. 25).

3. The term ‘corollary’ was used, for instance, by Polinsky (1974, p. 1665), Schwab (1989), Hovenkamp (1990, p. 785), Cooter and Ulen (1997, p. 82), Lai (1997, p. 195), Cramton, et al. (1998, p. 650), Posner (2001, p. 6), Hsiung (1999, p. 155; 2001, p. 188), Lai and Lorne (2003, p. 8), Pennington (2003, p. 60), Webster and Lai (2003, pp. 104, 144), Werin (2003, p. 81), Schmidt (2006, p. 1). Although Cheung did not use this expression, he was probably the first to formulate this concept in his work, Will China Go Capitalist? (1982, p. 35) for economy wide applications.

4. See note 2, ante.