AI agents won't shrink the firm — it becomes a liability container, argues Coase-style essay

krishnan · x · 2026-09-13

The author extends Coase's 1937 theory of the firm to AI agents: firms exist because market transaction costs (search, bargaining, contracting, verification) exceed just telling an employee what to do. Agents push those costs toward zero.
But Coase missed liability: employees can be fired and contractors sued, while agents have no assets, licenses, or jail cells — "you cannot deter a probability distribution."
The Air Canada chatbot case shows the law pushing liability back into the firm: the airline's claim that its bot was "a separate legal entity" was rejected by the tribunal.
Conclusion: the 2030 firm is a legal wrapper whose job is to be sued, insured, licensed, and fined. Org charts fade; cap tables and insurance policies remain. Firm size will track the cost of insuring agent output, and the winners will be those who can price and carry the blame.

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