The Privatization of Roads and Highways - Ludwig von Mises Institute

Homesteading City Streets:
An Exercise in Managerial Theory 247
government control, where the authorities in charge of city
streets, bridges, tunnels, thruways, roads of contiguous states, etc.,
must all deal with one another. It might appear that transactions
costs could be avoided if there were only one state authority, or
one private road owner wherever highways or streets connect.
But this is a mirage. The costs of coordination under such a system
might be labeled management instead of transactions costs,
but they would remain costs nonetheless.
It cannot be denied that such costs would still exist, even
under a full, free enterprise road system. But if we have learned
anything from the fall of the Berlin Wall and the economic debacle
that was the economic system of the U.S.S.R., it is that one of
these systems is highly efficient, and not the other. The government
system, after all, is the one that brings us the horse and
buggy U.S. Post Office. Need any more be said?
But let us posit that management within one firm is cheaper,
within the relevant range, than negotiation between different
street companies. Taking this idea to its ultimate logical conclusion
would imply a single firm, for example, in all of North and
South America, since all roads on these two continents are connected
to each other. (We pass over the “problem” of the discontinuity
in Panama, given that there are bridges that enable cars to
travel north and south over it. If there were none, then, instead of
only one owner, there would be two firms, one for each of the
American continents.) Does this present any particular problem
Institutional Structure of Production,” American Economic Review 82, no. 4
(September 1992): 713–19. Why is it that firms arise in markets, but no one
firm takes over the entire economy? For Coase this has to do with the minimization
of costs within and between firms. For example, it is very expensive
for the waitress to bargain with the cook, offering him a price for the
meal he gives her; in order to economize on these sorts of transactions,
firms are created within which markets do not occur, but rather commands;
e.g., the owner of the restaurant “commands” the cook to give the waitress
the meal without charging her for it. However, unless there is vertical integration
between the restaurant and the supplier of vegetables, for example,
the former purchases these factors of production from the latter.