Monday, February 04, 2013

Coasian economy

Ronald Coase enriched economics by pointing to the importance of transaction costs.  Ngram Viewer shows that the expression was not much used before 1965.

But web and app innovators are just now showing us how modern communications can help us to establish reputation and credibility, thereby reducing transaction costs and creating previously unthought of transaction opportunities.

The current Forbes includes "The Share Economy ... Consumers are building multibillion-dollar marketplaces for sharing cars, homes, bicycles, driveways and tools. In looking for a better deal and extra income, they're reshaping business."

I have been skeptical of the various stagnation theses. Standard GDP accounting does not get at the welfare improvements we get when more of us supply and demand more to/from each other.  A matching problem (transaction costs) is scaled back as we communicate more cheaply, transact more and find economic value in all the idle stuff laying around -- much of it even being stored at high cost.