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The link of online version of "the nature of the firm" was not working. That's why i changed the link. |
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== "The Problem of Social Cost" ==
Published in the ''Journal of Law and Economics'' in 1960, while Coase was a member of the Economics department at the University of Virginia, "The Problem of Social Cost" provided the key insight that it is unclear where the blame for externalities lies. The example he gave was of a rancher whose cattle stray onto the cropland of his neighbour. If the rancher is made to restrict his cattle, he is harmed just as the farmer is if the cattle remain unrestrained.
Coase argued that without [[transaction costs]] it is economically irrelevant who is assigned initial property rights; the rancher and farmer will work out an agreement about whether to restrict the cattle or not based on the economic efficiency of doing so. Property rights allocation will hence matter only in determing distribution.
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