Newspapers as Coasian Firms

31 March 2008 at 8:43 am Peter G. Klein 2 comments

| Peter Klein |

The hunter-gatherer model of journalism is no longer sufficient. Citizens can do their own hunting and gathering on the Internet. What they need is somebody to add value to that information by processing it — digesting it, organizing it, making it usable.

This is why we still need newspapers — or something like them. Ronald Coase, the British economist, once asked why we need business firms. Why can’t all their activities be coordinated by individuals contracting with one another instead of working in a bureaucratic, command-and-control environment? The answer, he said, is transaction costs. If a manager had to negotiate with a free-lancer for every task, the cost in time would be unbearably high.

Searching for information on the Internet involves something like transaction costs because we have so many varied sources to evaluate. We need somebody we trust to organize them for us. That can be the task of the new journalism.

That’s from the retirement speech of UNC journalism professor Philip Meyer. Here is more. I like the attempt to characterize information intermediaries — which would include not only newspapers but also directories, databases, organized financial exchanges, ratings agencies, books, universities, and the like — as coordinating agents in the Coasian sense. But they needn’t include the fiat, or authority, that characterizes the Coasian firm. Instead they are probably better regarded as loosely structured networks or some other “hybrid” that combines elements of market and hierarchy. Your thoughts?

Entry filed under: - Klein -, Institutions, Theory of the Firm.

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2 Comments Add your own

1. aje | 31 March 2008 at 11:16 am

A recent edition of Ama-Gi featured an article on this topic by Chris Dillow – blogger at Stumbling & Mumbling, and himself a finance journalist. Quote:
Take my own business, journalism. Some journalists work as freelancers, in the Hayekian world of markets. But most live in the Coasean world of central planning, taking orders from editors.
To see why, imagine an editor ringing a freelancer:
Editor: “can you write 1000 words on private equity for tomorrow?”
Freelancer: “I can’t. I’m busy doing other stuff.”
The conversation stops. If the freelancer were an employee, however, the editor could order him to stop that other work. It’s therefore more efficient for the freelancer to become an employee. So a firm emerges.

Click to access Ama-gi_2007.pdf
2. Andrea Mangani | 31 March 2008 at 11:27 am

It is curious that Meyer claims that “searching for information on the Internet involves something like transaction costs because we have so many varied sources to evaluate”. In reality, information costs are, for Coase, the main source of transaction costs (that is, the cost “of discovering what the relevant prices are”, as well as any other information about contractual conditions on the market). Today, information costs are partially neglected by neo-institutional scholars, who prefer to focus on post-contractual sources of transaction costs. However, I think that the existence and the boundaries of newspapers depend on where the web produces a higher reduction of transaction costs. In other words, consumers can collect information through the Internet at a lower cost, but also journalists use the Internet to gather and elaborate information, and the costs of internal organization of newspapers decrease.