Before Coase, economists regarded air, water, and noise pollution, for example, as social costs inflicted on society by the market system. Producers were profiting by shifting costs to society in general. Economists believed that only increased government regulation could rectify these "market failures" and prevent capitalism from harming society. Coase undermined the conventional wisdom by arguing that social costs result from the absence of defined property rights, not from the failure of markets. The solution was to extend the market by defining rights.

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