The nature of the firm

Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386-405.

Type

Journal article

Intellectual base

Primary research

Year

1937

DOI

10.1111/j.1468-0335.1937.tb00002.x

Link

https://doi.org/10.1111/j.1468-0335.1937.tb00002.x

Cited from

economics_finance, sociology_anthropology

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.
• 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)

• 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.

• 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.

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