CONCEPT
The Coasian Boundary in the AI Age
Ronald Coase's 1937 principle that firms exist where internal coordination costs less than market transactions — restructured by AI's collapse of creation costs, shifting optimal team size downward and judgment density upward.
The Coasian boundary marks the threshold where a firm's internal coordination costs equal market transaction costs, determining optimal organizational size. For nearly a century, this boundary remained stable in knowledge work because the transaction costs of converting ideas into artifacts — specifications, translations, coordination overhead — were high enough to justify large, specialized teams. When AI collapsed the imagination-to-artifact ratio from months to hours, the coordination overhead of traditional teams suddenly exceeded the value they added. Small judgment-dense teams with AI leverage outperform large execution-focused teams, shifting the boundary inward and reorganizing the entire production function of knowledge work.
In The You On AI Field Guide
Ronald Coase asked in 1937 why firms exist at all if markets are efficient allocation mechanisms. His answer—that firms internalize transactions when coordination through contracts, negotiations, and enforcement costs more than managing the same work under unified direction—became the foundation of organizational economics. The boundary