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1.
Introduction
Ronald Coase was one of the world's most influential economists. His work had a profound and lasting impact on public policy, the study of economics and of law, and social science throughout the world. This article summarizes his intellectual life and his contribution to economics. Section 2 briefly describes his most influential ideas: transaction costs and the nature of the firm, the role of government, and the problem of social cost. 1Coase took issue with the way many economists approached their subject; Section 3 summarizes his views. Section 4 describes how Coase shaped the emerging fields of law and economics and new institutional economics, and how he supported young scholars. Coase lived a long and fruitful life; after he retired from teaching and editing, he continued to be preoccupied with the development of China and puzzles about the firm; these topics are discussed in section 5.
2.
Coasean ideas with a major impact on economics and policy
Coase's ideas had enormous impact, but their influence was not instantaneous. Although the ideas we analyze below progressively permeated our intellectual landscape, their diffusion was remarkably slow and often plagued with misinterpretations. For example, only in the 1970s was "The Nature of the Firm" (1937) perceived as a revolutionary way of analyzing what Coase called "the institutional structure of production," the bones and flesh of market economies. Moreover, the concept at the core of this revolution--transaction costs--was disseminated largely because of the controversy surrounding his 1960 paper, "The Problem of Social Cost."
Transaction costs: "the nature of the firm"
Travelling in the United States, Coase was stimulated by the "lack of any theory which would explain why . . . industries were organized in the way they were. My year in the United States was essentially devoted to a search for a theory of integration" (Coase, 1991a: p. 38). Since theory assumed that the price mechanism coordinated the economic system, Coase wondered whether markets supported transactions as efficiently as existing theories suggested. As is now well known, he gave a deceptively simple answer: there are costs to using the price mechanism, costs that under certain conditions can make it advantageous to use alternative arrangements, such as directing resources...