American Awarded Nobel Prize in Economic Sciences

Article excerpt

AMERICAN economist Ronald Coase, a professor at the University of Chicago, has won the Nobel Memorial Prize in Economic Sciences for breakthrough contributions to "our understanding of the way the economy functions."

The Swedish National Bank, which awarded the prize Tuesday, said Mr. Coase showed that traditional basic microeconomic theory was incomplete because it only included production and transport costs, neglecting the costs of entering into and executing contracts and of managing organizations.

"Such costs are commonly known as transaction costs, and they account for a considerable share of the total use of resources in the economy," the bank said, adding that when these costs are taken into account, "it turns out that the existence of firms, different corporate forms, variations in contract arrangements, the structure of the financial system and even fundamental features of the legal system can be given relatively simple explanations."

In its citation the bank said, "Until recently, basic economic analysis concentrated on studying the functioning of the economy in the framework of an institutional structure which was taken as given."

But the bank said that by means of a radical extension of microeconomic theory, Coase "succeeded in specifying principles for explaining the institutional structure of the economy, thereby also making new contributions to our understanding of the way the economy functions."

"When {Coase's} breakthrough finally occurred during the 1970s and 1980s, it was all the more emphatic," the citation said. …