The nature of the firm¶
Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386-405.
Cited by¶
4 citations across 4 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Division of Labor
- Productive division of labor sits at the point where marginal specialization gain equals marginal coordination cost — a structural condition that Coase (1937) develops in his analysis of why firms exist at all, treating the firm boundary as the line where internal coordination becomes cheaper than market exchange.
Supported in partVerified against the work's full text
Coase supports the firm-boundary half (internal organising cost equals market cost at the margin) but explicitly rejects division of labour as the explanation of the firm.
“a firm will tend to expand until the costs of organising an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market”
- Productive division of labor sits at the point where marginal specialization gain equals marginal coordination cost — a structural condition that Coase (1937) develops in his analysis of why firms exist at all, treating the firm boundary as the line where internal coordination becomes cheaper than market exchange.
- Exchange
- Coase's (1937) analysis of the firm as a domain within which exchanges are coordinated by hierarchy rather than by price makes the role-decomposition methodologically explicit: the question of whether to internalize an exchange depends on the cost of specifying each role under each governance regime.
This sourceFirms exist because internal coordination is sometimes cheaper than the transaction costs of market exchange (search, negotiation, contracting, enforcement)
Supported in partVerified against the work's full text
Coase supports the firm as authority-directed coordination replacing price-mediated exchange, weighed by relative costs, but says nothing about the cost of specifying roles.
“the operation of a market costs something and by forming an organisation and allowing some authority (an “entrepreneur”) to direct the resources, certain marketing costs are saved.”
- Coase's (1937) analysis of the firm as a domain within which exchanges are coordinated by hierarchy rather than by price makes the role-decomposition methodologically explicit: the question of whether to internalize an exchange depends on the cost of specifying each role under each governance regime.
- Internalization
- The prime emerged most explicitly in sociology and social psychology (norm acquisition, conscience formation), but the same boundary-relocation move appears in economics (internalizing an externality), organizational theory (Coase's firm), and developmental learning (Vygotsky's inner speech), which is what gives it standing as a cross-domain abstraction rather than a single field's term of art.
This sourceArgues that firms exist because internal coordination through managerial direction is sometimes cheaper than the transaction costs of market exchange (search, negotiation, contracting, enforcement). The firm boundary sits where the marginal cost of organizing one additional transaction internally equals the marginal cost of organizing it through the market — a structural account of where the technical division of labor gives way to the social.
Supported in partVerified against the work's full text
Coase supports only the organizational-theory example: the firm boundary moves as transactions shift between market and managerial organization.
“A firm becomes larger as additional transactions (which could be exchange transactions co-ordinated through the price mechanism) are organised by the entrepreneur and becomes smaller as he abandons the organisation of such transactions.”
- The prime emerged most explicitly in sociology and social psychology (norm acquisition, conscience formation), but the same boundary-relocation move appears in economics (internalizing an externality), organizational theory (Coase's firm), and developmental learning (Vygotsky's inner speech), which is what gives it standing as a cross-domain abstraction rather than a single field's term of art.
- Transaction Costs
- (1) Transaction Costs are the economic costs of making an exchange beyond the nominal price of the goods or services traded — the costs of searching for counterparties, negotiating terms, drafting contracts, monitoring compliance, and enforcing agreements.
Supported in partVerified against the work's full text
Coase names the cost of using the price mechanism: discovering prices and negotiating and concluding contracts; monitoring and enforcement are not listed.
“The costs of negotiating and concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account.”
- (1) Transaction Costs are the economic costs of making an exchange beyond the nominal price of the goods or services traded — the costs of searching for counterparties, negotiating terms, drafting contracts, monitoring compliance, and enforcing agreements.
Verification¶
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