Economica Coase Lecture: Reference Points and the Theory of the Firm

I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in‐house production) or in the market place (outsourcing).