The Problem of Social Costs by Ronald Coase

Summary: The Problem of Social Costs, by Ronald Coase
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Social costs are reciprocal because they emanate from situations that involve stakeholders guided by a reciprocal relationship based on the object of the detriment. Considering the relationship between agents A and B, it is presumed that both parties cause the detriment. Preventing damage to B implies detrimental ramifications on the side of A. In this scenario, both parties are incurring costs. It is anticipated that both parties should take into account the emergent damage when deliberating on their feasible course of action. Coase demonstrates the reciprocal nature of social costs using specific examples of authentic legal cases, thus prompting the question: should B be legitimized to cause harm to A, or should A be authenticated to harm B? It is a subject of deciding the specific agent’s interests to protect by law or whose interests are deemed to achieve rights status (Coase, 1960). These rights are inherently dual as granting a right to one party implies exposing the competing stakeholder to the ramifications of exercising such a right, thus leading to costs.
Transaction costs imply the cost of offering specific goods or services via the market instead of channeling them from within the company. According to Coase (1960), transaction costs emphasize the need to conduct market transactions based on establishing the...