ECONOMICS: Ronald Coase

You need to have econ background to answer these!

You can read the article here: http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf

and answer the questions below with details and insights.

Ronald Coase, “The Nature of the Firm,” Economica 4, 1937, pp. 386-405, Reprinted in Richard Posner and Kenneth Scott (eds.), Economics of Corporate Law and Securities Regulation, Little, Brown, and Co., Boston, 1980, pp. 2-7.

1. What is Coase’s reason for why firms exist? Why does he state that “a firm is likely therefore to emerge in those cases where a very short term contract would be unsatisfactory”? Why is this of more importance for labor than for commodities?

2. In “The Nature of the Firm,” what three reasons does Coase give for why not all production takes place within a firm? In terms of these three factors, when would a firm tend to be larger? How would teleconferencing change the likely size of firms? What about improvements in managerial techniques?

3. How could e-mail lead to moving back office (e.g., accounting) functions to lower land and labor cost suburbs, while leaving headquarters workers in the more expensive downtowns? Could effective teleconferencing lead the headquarters to leave downtown?

4. Did creation of computer spread sheets increase or decrease the cost of firms making decisions internally?  Explain.

5. According to Coase, would firms exist if transactions costs were zero? If management costs were zero?