Ronald Coase's Method of Building More Realistic Models of Choice

This paper argues that Ronald Coase's major contributions to economic theory are best understood in terms of the distinct method he used to build more realistic models of choice. We call his method the benchmark-comparison method. It consists of building models of choice and then using them as benchmarks in the further investigation of economic interaction, either by comparing the benchmark models with observed interaction or by building additional models of choice, which may themselves function as benchmarks. The paper first describes the method then demonstrates how Coase used it in his two most famous papers. We go on to show how an understanding of the method confirms Coase's own statements about the continuity of his thought. Finally, we assess Coase's critique of Milton Friedman's positivist methodology and discuss a recent paper on Coase's methodology.