The Coasean Singularity is nigh

The internet was an out-of-sample validation of Ronald Coase’s theory of the firm. 

When websites and email dramatically lowered the cost of discovering prices and negotiating contracts, firms responded as Coase predicted they would: by letting prices do more of the coordination work their managers once did.

This allowed companies like Apple, Dell and Nike to evolve into orchestrators of global supply chains.

Still, plenty remained for companies to do internally: Websites display prices, and email sends contracts. But these technologies alone cannot decide which prices to pay, where to send the contracts, or what the contracts should say.

AI agents, however, can. 

In “The Coasean Singularity,” a team of economists and computer scientists describe the next great development in the theory of the firm: agents that lower the cost of coordinating through the market so far that much of what firms do no longer needs to happen inside them.

While popular narratives predict the impact of AI agents in apocalyptic terms — mass unemployment, a robot takeover, human extinction — the paper takes a more prosaic view: “The fundamental economic promise of AI agents lies in their ability to dramatically reduce transaction costs — the expenses associated with using markets to coordinate economic activity.”

But don’t let the Coasean framing fool you. The economists think agents will have a dramatic impact on society.

“Much of how we structure our economy and firms can be explained by transaction costs,” they explain, adding that agents could effectively eliminate these costs: “The activities that comprise transaction costs — learning prices, negotiating terms, writing contracts, and monitoring compliance — are precisely the types of tasks that AI agents can potentially perform at very low marginal cost.” 

So what happens when transactions can be made at very low cost?

The Coasean answer is that AI agents will make a lot of decisions on our behalf.

“Humans will deploy AI agents in two primary scenarios,” the paper says. “First, to optimize decisions that they would otherwise make sub-optimally due to information constraints or cognitive limitations” — like price discovery or contract negotiation — “and second, to make decisions of similar or potentially even lower quality, but at dramatically reduced cost and effort” — like continually renegotiating routine expenses or ordering groceries according to what’s on sale.

For companies, that will mean pushing even more managerial decisions and activities out into the market — by delegating them to agents that can continually discover prices and negotiate contracts.

For individuals, it will mean having a tireless advocate always at our side: “It is easy to imagine more advanced agents contacting multiple counterparties to negotiate prices,” the paper says, “or applying to jobs and advocating for employment on a user’s behalf.”

Over time, the authors think we’ll come to rely on these agents so heavily that “AI will serve as a filter between humans and the broader digital environment.”

If so, I doubt we’ll trust ourselves to create those reality-filtering agents with OpenClaw. Instead, we’ll likely hire whatever specialized agent is best at any given task.

These agents could all be stand-alone businesses. 

When the internet so dramatically lowered the cost of market transactions, it didn’t just allow big companies like Apple to outsource more of their processes. It also allowed entirely new kinds of businesses to emerge.

Uber, for example, is a platform that coordinates ridesharing through price signals rather than managerial command — perhaps the most purely Coasean business model to date (and only possible because of the internet). 

AI agents seem likely to do something similar. “By lowering the costs of preference elicitation, contract enforcement, and identity verification,” the paper says, “agents expand the feasible set of market designs.”

In other words, agentic AI will make entirely new kinds of businesses possible. 

The paper doesn’t speculate much on what these might be. But the title seems to offer a hint: “The Coasean Singularity” implies that agents could collapse the cost of transacting in the market to effectively zero.

By Coase’s logic, zero transaction costs could mean zero-employee companies. 

“The main reason why it is profitable to establish a firm,” he wrote, “would seem to be that there is a cost of using the price mechanism.” 

If there’s no cost to using the price mechanism, there may be no reason to establish a firm.

But can AI agents really achieve a Coasean singularity? Can they do everything that a firm of managers does? And if so, what would we call this new thing?

We’ll find out tomorrow in the third and final installment of this cliff-hanging newsletter triptych: How crypto will enable “agentic companies.”

— Byron Gilliam

P.S. Check out yesterday’s Part 1, a deep dive into Ronald Coase’s theory of the firm.

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