Coase's article about the role of the entrepreneur

A couple of months ago I had the chance to read a short fragment from “The nature of the firm” (R. H. Coase, Economica, New Series, Vol. 4, No. 16. (Nov., 1937), pp. 386-405.), which I found on JStor. He talks more about the interactions between firms within the market mechanism, but overall, I believe that his article justifies the need for an entrepreneur in every firm. In my opinion, the article uses the words entrepreneur and manager with the same connotation, which might not be true in some cases.

The reading linked the entrepreneur with the firm and then focused on a firm’s boundaries. Coase sees the entrepreneur as a coordinator who directs production and who manages to reduce certain costs that would have been encountered otherwise, and namely if using the market’s price mechanism (like for example the cost of information that adds up for every new good procured, or the bargaining cost that might arise whenever an exchange is likely to happen).

I also believe that the entrepreneur’s role is to reduce transaction costs within the company (an example that Coase gives is the reduction in the number of short time contracts that otherwise would need to be taken care of under the market system; e.g. a one time contract for somebody to prepare a presentation) and increase the firm’s efficiency by reducing losses, bottlenecks and idle or useless waste of time. Thus, by reducing the transaction costs that otherwise would have been encountered and efficiently directing and coordinating the resources within a firm, the role of an entrepreneur is vital in the creation and function of a business.