Introduction: Bringing Economy and Politics Together
Politics and economics, the two pillars that the well-being of every country is based on, are closely interconnected with each other. Creating the paradigm of the two elements’ cooperation, one can draw a scheme of the macroeconomic development.
Since the approach that Coase demonstrates incorporates the spheres of law and economics, trying to explore the nature of the problem, the ideas offered by the scientist are likely to have great effect on the existing state of the country, increasing the level of output and providing sufficient means to encourage the development of the country.
However, such approach has faced considerable criticism, which means that the theory offered by the scientist is far from being impeccable. Stating that the coordination between the law and the economics of the country increases its economical efficiency, Coase insists that the legal laws are bound to prove working in the sphere of economics, moreover – that they will contribute to its development and improvement.
According to the author himself, “the initial delimitation of legal rights does have an effect on the efficiency with which the economic system operates.” (Coase 8). Once establishing the system of legal rights and legal laws in the sphere of economics, the state will obtain considerable profit, which makes Coase’s reasoning most convincing. “One arrangement of rights may bring about a greater value of production than any other” (8), Coase explains.
The Interconnection: More Than Skin Deep
Considering the economist’s theory, one can claim with certainty that such approach is rather unusual; however, in the light of the modern threatening economical situation, it is worth trying. Taking into account the existing criticism of the theory, the ideas of Coase are highly productive.
“The traditional Coasian framework is summarized in the set of assumptions adopted by Hoffman and Spitzer in their behavioral evaluation of the theorem”, Lai (211) says. Building their new theories based on Coase’s idea of comprising the law and the economics, the economists consider Coase’s viewpoint the most plausible tendency for the future course of economics.
Once Coase suggested his idea of transactional costs to the world of economics, the concern for the real costs demanded for the transformation of goods has grown: “These costs are assumed away in the Coase Theorem and, hence, their use implies that the theorem has been modified for practical applications” (Lai 207).
In general, the idea that Coase offered when suggesting incorporating the legal system and the system of the country’s economics was welcomed rather warmly; since it corresponded to the main concept of the behavioral economics theory. However, it must be taken into account that the theory has been subject to considerable criticism.
Pros and Cons of the New Theory: The Pitfalls to Beware
Like every theory that tries to embrace different spheres of the state operation, the theory offered by Coase doe shave certain issues to develop. Hence, the theory has been considered by the other economists a number of times. According to the existing evidence, one of the most debatable issues in the theory by Coase is the interrelation of the law and the economics.
It must be admitted that the two issues have much in common, yet relying on the legal issues completely, trying to restore the economical state of the country seems rather unusual idea. In addition, a number of essential obstacles on the way to the economical renewal have been marked.
One of these, the assumption that the drawbacks of the legal system might have their negative effect on the economical state of the country, is worth consideration. According to UNIDROIT, the drawbacks of the legal system “act as a damper on an economic activity because people will not undertake new and risky transactions if they are not satisfied with the legal framework” (6). Therefore, the theory suggested by Coase requires thorough check.
It must be also marked that the theories that fit into the legal system perfectly are not necessarily impeccable in the sphere of economics. However, the most recent research claim that the connection between the market system and the sphere of law prove much more similar than it was expected.
According to the statement made by Collins, “recent studies show string correlation between the structure of legal systems and fair working of the market” (280). It is remarkable that, to justify the connections made between economics and law, Coase marked that behaviorist economics had experience in connecting economics and linguistics (Coase 36).
Thus, it can be assumed that the theory offered by Coase is worth serving as a basis of the future strategic plan for the country economical renewal.
Conclusion: Relying on the Brand New Ideas
Taking into account the existing evidence, one can assume that the ideas suggested by Coase can be applied to the existing economical scheme. However, it must be admitted that such innovations will demand certain changes in the sphere of economics and law.
Theer is no doubt that, creating the sphere for the fair trade, and keeping in mind the peculiarities of the market is enough as a start for the country to restore the existing economical state and develop in into a more perspective one.
Works Cited
Collins, Hugh. Standard Contract Terms in Europe: A Basis for and a Challenge to European Contract Law. Netherlands, NL: Kluwer Law International, 2008. Print.
Coase, Ronald H. “The Problem of Social Cost.” Journal of Law and Economics, 3.1 (1960): 1-44. Print.
Coase, Ronald H. Essays on Economics and Economists. Chicago, IL: University of Chicago Press, 1995. Print.
Lai, Lawrence W. C. The Ideas of Ronald H. Coase. New York, NY: Taylor & Francis, 2011. Print.
UNIDROIT. “Legal Risk and Market Efficiency.” Harmonised Substantive Rules Regarding Securities Held with an Intermediary. Rome, IT: UNIDROIT, 2003. Print.