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There is plenty of good stuff and illuminating comments in Coase's works, but there is also a lot of vague and ambiguous reasoning. The latter sometimes makes it quite confusing what Coase is trying to say. His 1937 piece is a case in point, in which he (as noted by e.g. Demsetz) misunderstands economic reasoning and opportunity costs to such a degree that he invents "marketing costs" as somehow "outside" of opportunity costs. His argument for the firm is at best a confused tautology based on a misunderstanding.

This being said, his humility and approach is in many ways laudable. Coase was also fearless in challenging rather universally held (mis)conceptions, which is a fantastic quality when right and detrimental when wrong (as in the 1937 piece).

In my view, of the two papers cited by the Royal Swedish Academy of Sciences for his "Nobel" prize, the 1960 piece is far better than the 1937. One can tell that Coase, while sticking to some misconceptions, was much more mature as a scholar when writing the latter.

What do you think about this critique, i.e. the question of where Coasean bargaining ends and extortion begins?

That "critique" highlights some of the differences between Coase and his critics. First the author hasn't read Coase. If he had, he would know that Coase used the unrealistic case of zero transaction costs to show why property rights did matter in a the real world of positive transaction costs. Coase's primary point was always that economists should study the real world. If they actually looked carefully at the real world they would see that lighthouses did not have to be provided by the government, farmers can pay beekeepers, and Fisher Body and GM did not merge because of a hold up problem. If the "author" of the "critique" had ever glanced at the real world he might have known that his scheme to make a fortune with his roaming cattle would not work. In the real world farmers that want to keep out roaming cattle put up fences.

As for the first comment, I missed where Coase said that marketing cost were somehow "outside" opportunity costs. I would appreciate it if I could be directed to where he stated that.

Here is how I explain to law school students Coase's insight in "The Problem of Social Cost." It is so important for the legal profession, much less economists, to get Coase's insight correct. You're right—it is simple, but so overlooked.

see http://www.youtube.com/watch?v=yqT6koFnEwA for a great lecture by Coase in 2003 discussing many of the above issues using, at bottom, mostly the price theory he learnt at LSE from arnold plant.

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