About some distortions in the interpretation of 'The Problem of Social Cost'

The extraordinary influence of The Problem of Social Cost" is now well acknowledged. Beyond the official recognition coming with the award of the Alfred Nobel Memorial Prize in Economic Sciences as well as the myriad citations, what may matter most, as emphasized by Mary Shirley (2013), is that in introducing the concept of 'transaction costs', Coase initiated a revolution in the way economists and social scientists should look at the organization of economic activities in a market economy. Actually, the concept of transaction could well be considered one of the most important in economic theory, together with the concept of the division of labor. As emphasized by Coase (1998), the two concepts complement each other. In order to take advantage of the division of labor economic actors must specialize their activity; this is sustainable and beneficial if and only if they can organize transactions among them at a cost that is less than the expected benefits. Paradoxically, this organizational dimension that Coase pinpointed as "The Institutional Structure of Production" in his Nobel Lecture has been largely neglected in the literature inspired by "The Problem of Social Cost." In what follows, I would like to show how this missing dimension is rooted in some misinterpretations of the 1960 paper (section 1) and what consequences it should have in partially redefining the research agenda sketched by Coase in his paper (section 2).