In his seminal 1960 paper, 'The Problem of Social Cost,' Ronald Coase fundamentally reshaped the economic analysis of externalities. He argued that when property rights are well-defined and transaction costs are negligible, private bargaining can lead to an efficient resolution of harmful effects, regardless of the initial allocation of rights. This core idea, later termed the Coase Theorem, challenged the prevailing Pigouvian view that government intervention was always necessary. The paper also introduced the critical concepts of transaction costs and the reciprocal nature of harm, emphasizing that the real-world presence of these costs is the primary reason why legal and government institutions are needed to address externalities.