U. OF CHICAGO PROFESSOR WINS NOBEL ECONOMICS PRIZE

Associated Press
Section: BUSINESS,  Page: B13

Date: Wednesday, October 16, 1991

Ronald Coase of the University of Chicago won the Nobel economics prize Tuesday for his long-ignored explanations of how market economies are shaped by contracts, laws and property rights.


In awarding the $1 million prize, The Royal Swedish Academy of Sciences said Coase's theories "are among the most dynamic forces behind research in economic science and jurisprudence today." The British-born Coase (pronounced Cose), 80, is a professor emeritus at the University of Chicago Law School, where he actively is engaged in research. He is the 14th economist from the University of Chicago to win the economics prize.


Coase, who was vacationing in southern France, could not immediately be reached by the academy for formal notification he had won the prize.


"Coase explains the structure of a market economy," said Assar Lindbeck, chairman of the prize committee. "He tries to explain why we have firms, how companies evolve and the reason why they do or don't expand."


"The largest practical use for his studies is that people better can understand how the world works and why," Lindbeck said.


Before Coase's pioneering work, theories on how the economy worked only included production and transport costs. But the expense of signing and completing a deal, making phone calls, hiring lawyers and administering an organization were neglected.


Those factors - called transaction costs - account for a considerable share of the total use of resources in the economy.


Coase's theories on transaction costs grew out of his work in the 1930s, when he toured American factories as a student from the London School of Economics.


But until the 1970s and 1980s, micro-economists payed little attention to such costs, and Coase was virtually alone in his efforts to use them in economic analysis.


His other big contribution was developing the theory of property rights and how they affect economic success or failure.


"One conclusion of Coase's work is that when rights are not well- defined we do not get an effective use of resources," said Karl-Goran Maler, a member of the prize committee.


As an example, he cited natural resources, saying they are often mismanaged because rights to their use are not spelled out.


Coase's works on the importance of property rights "have given birth to a completely new scientific branch, where we have leading legal experts and leading economists who work (from the basis of) understanding the legal apparatus," said Maler.


The Nobel winner's theories have been used in legal science, economic history and organization theory, and apply to research in other fields as well, associates said.


Coase's two major studies are "The Nature of the Firm," in which he introduced the term transaction costs, and illustrated their crucial importance, and "The Problem of Social Costs," in which he discussed property rights.


His successor at the law school, Douglas Baird, said he was not surprised to learn that Coase had won the prize.


"Coase is just a genuinely great man who has revolutionized the study of law and economics and has just been a towering figure for decades," Baird said.


Coase became an American citizen after moving to the United States in the 1940s, but he kept his British accent and mannerisms, colleagues said.


"He is a quiet, shy, gentle Englishman, complete with waistcoat and umbrella wherever he goes," said Lord Harris, founder president of the London- based Institute of Economic Affairs.


"He is very down-to-earth and a bit absent-minded and it will give enormous pleasure to economists that it is not always those who make the most noise who carry off the trophies," he said.


In addition to his work at Chicago, Coase was at the London School of Economics from 1935 to 1951, taught at the State University at Buffalo from 1951 to 1958, and worked at the University of Virginia until 1964.