The Credibility Thesis meeting the Coase Theorem in terms of form and function

Abstract

This paper engages two theories about the form and function of institutions, the “credibility thesis” offered by Peter Ho (2014, 2017, 2018) and the paradigmatic Coase Theorem, in two versions formulated by George J. Stigler and Steven N.S. Cheung and recognised by Ronald H. Coase (1988). The joint consideration of these two influential theories was predicated on the fact that the former, with its hallmark being “function trumps form” (Vatn 2023), is said to embrace institutional arrangements as endogenous, while the latter treats them as policy variables. This paper, interpreting the internal logic of the credibility thesis in its best possible light, explains that as a policy tool it is compatible with the contingent, comparative and case-by-case thinking of the Coase Theorem, as pointed out by Harold Demsetz (1969), although users of the former have launched an unfortunate and unsubstantiated attack on neo-institutional economics (NIE) likely based on a misinterpretation of primary sources.