Ronald H. Coase won the 1991 Nobel Memorial Prize in Economic Sciences for discovering and clarifying the significance of transaction costs and property rights for the institutional structure and functioning of the economy.
Coase’s work asked why economic activity sometimes takes place inside firms instead of through market contracts. His answer emphasized transaction costs: searching for information, negotiating agreements, monitoring performance, and enforcing contracts. Firms can arise when organizing an activity internally is less costly than using the market.
The Coase theorem, associated with his 1960 article on social cost, examines bargaining and externalities under ideal conditions such as well-defined property rights and negligible transaction costs. The theorem is often oversimplified as saying markets always solve pollution problems; that is not its general claim. Coase’s 1991 award recognized a broader institutional analysis of how legal rules, property rights, and transaction costs shape economic organization.