Coase V. The Coasians

59 Pages Posted: 9 Jul 2000 Last revised: 17 Apr 2008

See all articles by Simon Johnson

Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1999

Abstract

The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.

Suggested Citation

Johnson, Simon and Shleifer, Andrei, Coase V. The Coasians (December 1999). NBER Working Paper No. w7447, Available at SSRN: https://ssrn.com/abstract=227591

Simon Johnson (Contact Author)

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center ( email )

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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