Coase in the age of code

Updated in March 2026

In 1937, Ronald Coase asked a question that still pertinent today: Why do firms exist at all?

The answer felt settled for decades. Coase explained that firms emerge because the market is costly. Contracts take time, negotiations add friction, and information is imperfect. When it becomes cheaper to manage people internally than to transact externally, a firm is born. The invisible boundary of the firm lies exactly where these two costs meet.

I spent the last decade in the trenches of blockchains, DAOs, and “trustless” systems. Crypto’s grand promise was to eliminate the very frictions that gave birth to the firm; to replace bureaucracy with code, management with incentives, and contracts with consensus. The thesis was elegant: If transaction costs drop to zero, the firm should dissolve into the network.

That was the dream. But it didn’t happen.

Crypto solved less than it claimed because transaction costs were never the only reason firms existed. The deeper constraint was comprehension. Someone still had to decide what mattered, what was true, what to prioritize, what to ignore, and who was accountable when the system failed.

When you replace contracts with smart contracts, you still need judgment: what counts as a valid state, what to upgrade, when to fork. When you remove hierarchy, you rediscover governance, only now it’s slower, noisier, and happening in public.

Bounded rationality didn’t vanish with blockchains. It simply migrated to Discord. The same cognitive limits that once defined the borders of the firm now define the borders of the network.

Agency problems persist too. Token holders delegate to committees, multisigs, or core teams. Power concentrates. Decision-making slows. Coordination becomes its own cost center. Every “decentralized” organization ends up rebuilding a managerial layer; sometimes reluctantly, sometimes accidentally.

The irony is that Coase’s logic still applies, but the variables have changed. Coase saw transaction costs as economic. What he couldn’t see from 1930s London was that the true constraint on coordination is not contract enforcement, but comprehension.

A modern firm isn’t just a bundle of contracts; it is a bundle of cognition. Its size is limited not by the cost of managing people, but by the bandwidth of shared understanding. Technology lowers the cost of transaction, but it does not raise the ceiling of comprehension. We can move money instantly, but aligning meaning still takes time.

This is the paradox of the digital firm: Infinite speed. Finite sensemaking.

AI now attacks the problem more directly. If crypto tried to replace trust, AI tries to replace hierarchy. The old managerial layer existed partly to route information: summarize context, resolve ambiguity, escalate decisions, and keep the organization coherent. In an AI-native company, much of that routing can be done by software.

This makes the firm smaller, but not obsolete. It removes some coordination cost, but it does not remove judgment cost.

Even if code can settle value instantly, humans still need slower systems for context, accountability, and trust. The firm endures because it optimizes for judgment, not just execution. This is why DAOs still look suspiciously like companies. They route capital through tokens, but their structure (small cores, delegated authority, bottlenecks) echoes the same patterns Coase described. It turns out coordination is a harder problem than trust.

What has changed is the granularity. The minimum viable firm used to require offices, payroll, management layers, and legal scaffolding. Now it can exist as a wallet, a passkey, a group chat, and an intelligence layer that keeps the context alive.

This does not end the firm; it distills it.

Coase explained why we built firms.
Crypto showed that trust could be programmed.
AI is now testing whether coordination can be compressed.

What remains is the irreducible core: judgment, accountability, and a shared reason-to-be.

The firm is not disappearing. It is being reduced to what only humans can still hold.