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Ronald Henry Coase (1910–2013) was a University of Chicago economist who was awarded the 1991 Nobel Prize in Economic Sciences. The prize recognizes Coase’s path-breaking work examining the institutional arrangements that govern the process of market exchange. In the citation accompanying his Nobel Prize, the Royal Swedish Academy specifically noted two journal articles that exemplified Coase’s Nobel Prize–winning work.

The 1937 article “The Nature of the Firm” addressed the question of why firms exist in a market economy. Coase likened a firm to a little planned society that relies on administrative decisions to internally coordinate production, as opposed to relying on the “invisible hand” of the external price system. Coase argued that firms exist to mitigate transaction costs, defined as the costs of managing market transactions ...

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