Managerial Authority in the Coasean Firm: An Entrepreneurial Perspective

Abstract

We describe and discuss Ronald Coase’s approach to managerial authority, placing it in the broader context of recent economics and management research on intrafirm coordination. To do so, we make use of work by Coase that is relatively little known, namely his writings on opportunity cost (Coase, 1938; Buchanan and Thirlby, 1973). Coase explicitly linked his under-standing of opportunity cost to the work he was simultaneously doing on the theory of the firm, but did not relate it to his later work on social cost. We bring in the property rights perspective associated with Coase’s (1960) later work on social cost by focusing on the role of managers in delineating property rights to assets in ways that maximize the value of production. Coase (1960) discusses the legal system and public organizations as two institutions that specialize in the delineation and enforcement of property rights. In contrast, in the same paper, he also hints at a notion of the firm as an institution that rearranges previously legally defined property rights. Picking up on this idea, we consider how firms, and more specifically managers, undertake the role of delineating and rearranging property rights.