TOWARDS A GENERALISED COASE THEOREM A general theory of bounded rationality, rule-following behaviour and the emergence of social and institutional structures as a substitute for market transactions

This paper argues that the assumptions underlying the neo-classical economic paradigm of perfect competition are not realistic. In particular, assuming exogenously fixed production technology and consumer preferences, as well as the availability of perfectly symmetric information at zero cost contradicts the findings on the inherent bounded rationality of human behavioural decisions. The paper builds on an information-theory approach. Bounded rationality is reflected in ruleor algorithm following behaviour. Establishing rules require an investment in information costs. Sticking to established rules entails economies of scale stemming from this investment. Behavioural rules can be stored in the human brain but can also be "farmed-out" into equipment goods and social structures. Farming-out reduces transaction cost (opportunity cost of information storage and processing). Increasing control and policing costs set limits on farming-