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The New Economic Unit?

Hadi By Hadi Published on August 9, 2016

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Ronald Coase' The Firm, The Market and the Law was a seminal book in the development path of corporate economic theory and built upon Coase' 1937 treatise, The Nature of The Firm.

He charts the philosophical and practical development of human activity into companies and corporations as the most efficient method of harnessing human activity to accomplish group tasks for economic rewards.

As a fan of monetary and economic history, I have long regarded it as a key cornerstone in the understanding of the workings of firms in a social and economic context.

The crux of Coase' insight is that economic units organise into firms because the friction costs of contracting with each other (and enforcing those contracts) for multiple functions and on multiple occasions become prohibitive when the same people want to work together on tasks that require continuous joint effort of a varying nature.

But what if those friction costs were greatly reduced? How would our understanding of firms change? Would we, and could we, organise into more autonomous economic units that come together as required? Is this the future of the corporate structure?

This is a discussion I have recently begun with great delight with my friend Han Verstraete, founder of Otonomos. Otonomos slashes friction costs by harnessing blockchain technology in the creation, management and governance of firms, and their interaction with each other.

Coase' core assumptions about the underlying reasons for the evolution of the traditional firm are greatly impacted by the tremendous reduction of friction allowed by blockchain based management of economic units. We are at the beginning of a new period in the history of markets and the governance of firms, and it coincides with the preferred working methods of millenials and young people globally.

The Economic Unit is evolving. 

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