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Coase v. the Coasians

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  • Simon Johnson
  • Andrei Shleifer

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

  • Simon Johnson & Andrei Shleifer, 1999. "Coase v. the Coasians," NBER Working Papers 7447, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7447
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    References listed on IDEAS

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    Cited by:

    1. Braun, Matias, 2004. "Trade Liberalization and the Politics of Financial Development," Santa Cruz Department of Economics, Working Paper Series qt70v7f9ff, Department of Economics, UC Santa Cruz.
    2. Irena Grosfeld & Iraj Hashi, 2001. "The Evolution of Ownership Structure in Firms Privatized through Wholesale Schemes in the Czech Republic and Poland," CASE Network Reports 0049, CASE-Center for Social and Economic Research.
    3. Xu, Cheng-Gang & Tong, Jian, 2004. "Financial Institutions and the Wealth of Nations: Tales of Development," CEPR Discussion Papers 4348, C.E.P.R. Discussion Papers.
    4. Bruce Kogut & Andrew Spicer, 2000. "Institutional Technology and the Chains of Trust: Capital Markets and Privatization in Russia and the Czech Republic," William Davidson Institute Working Papers Series 335, William Davidson Institute at the University of Michigan.
    5. Simon Johnson, 2000. "Tunneling," American Economic Review, American Economic Association, vol. 90(2), pages 22-27, May.
    6. Simplice A, Asongu, 2011. "Government quality determinants of stock market performance in developing countries," MPRA Paper 35508, University Library of Munich, Germany.
    7. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
    8. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/019, African Governance and Development Institute..
    9. Tong, Jian & Xu, Chenggang, 2003. "Financial institutions and the wealth of nations: tales of development," Discussion Paper Series In Economics And Econometrics 0404, Economics Division, School of Social Sciences, University of Southampton.
    10. Hooper, Vince & Sim, Ah Boon & Uppal, Asfandyar, 2009. "Governance and stock market performance," Economic Systems, Elsevier, vol. 33(2), pages 93-116, June.
    11. Asongu Simplice, 2011. "Democracy and Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/021, African Governance and Development Institute..
    12. Barbara Blaszczyk & Richard Woodward, 2001. "Secondary Privatisation: The Evolution of Ownership Structures of Privatised Enterprises," CASE Network Reports 0050, CASE-Center for Social and Economic Research.
    13. Cull, Robert & Matesova, Jana & Shirley, Mary, 2002. "Ownership and the Temptation to Loot: Evidence from Privatized Firms in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 1-24, March.
    14. Javakhadze, David & Ferris, Stephen P. & Sen, Nilanjan, 2014. "An international analysis of dividend smoothing," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 200-220.

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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