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European Journal of Law and Economics

, Volume 48, Issue 3, pp 331–349 | Cite as

Coase and transaction costs reconsidered: the case of the English lighthouse system

  • Rosolino A. CandelaEmail author
  • Vincent Geloso
Article

Abstract

What is Coase’s understanding of transaction costs in economic theory and history? Our argument in this paper is twofold, one theoretical and the other empirical. First, Coase regarded positive transaction costs as the beginning, not the end, of any analysis of market processes. From a Coasean perspective, positive transaction costs represent a profit opportunity for entrepreneurs to erode such transaction costs, namely by creating gains from trade through institutional innovation. We demonstrate the practical relevance of entrepreneurship for reducing transaction costs by revisiting the case of the lightship at the Nore, an entrepreneurial venture which had arisen to erode the transaction costs associated with regulation by Trinity House, the main lighthouse authority of England and Wales. By intervening into the entrepreneurial market process, Trinity House would pave the way for the nationalization of the entire English and Welsh lighthouse system. By connecting our theoretical contribution with an empirical application, we wish to illustrate that Coase’s theoretical understanding of transaction costs is inherently linked to an empirical analysis of market processes.

Keywords

Ronald Coase Transaction costs Lighthouses Lightships 

JEL Classification

B25 B41 H41 H44 

Notes

Acknowledgements

We wish to thank the editor, Alain Marciano, and four anonymous referees, whose comments greatly improved an earlier draft of this paper. We also benefited greatly from the comments and feedback provided by Peter Boettke, as well as from the assistance of Marcus Shera. Any remaining errors are entirely our own.

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Authors and Affiliations

  1. 1.Mercatus Center, F.A. Hayek Program for Advanced Study in Philosophy, Politics, and EconomicsGeorge Mason UniversityFairfaxUSA
  2. 2.Department of EconomicsKing’s College LondonLondonCanada

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