ECON 001A Lecture Notes - Lecture 14: Ronald Coase, Transaction Cost, Vertical Integration
19 May 2020
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3 ronald coase: the nature of the firm vs. alchian and demsetz. Vertical integration: arrangement where one firm owns the entire supply/factors chain to produce some highly valued good. Coase describes firms as a place where a range of exchanges that the market system suppressed can be accomplished through resource allocation directed by an authority. Alchian and demsetz stress the gains of team production when describing the firm . Productivity rises with team production; only if a monitor is there to make sure members don"t slack/cheat. In the firm (compliance, hierarchical organization, vertical integration): Transaction costs are high when we have to measure complex goods or specialized services (most people simply rely on reputation or blind eye to measure quality) With intermediate goods (workers in a firm) are bought in a market, the worker enters a contractual arrangement to produce a good specifically. His income is directly tied to performance (how much of that specific good he makes).
