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Can Coasean Bargaining Justify Pigouvian Taxation?

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  • STEPHANIE ROSENKRANZ
  • PATRICK W. SCHMITZ

Abstract

The fact that, according to the celebrated Coase Theorem, rational parties always try to exploit all gains from trade is usually taken as an argument "against" the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always exploiting "ex post" gains from trade through Coasean bargaining, may be solved by government intervention. In this sense, the impossibility of ruling out Coasean bargaining (after investments are sunk) may in fact "justify" Pigouvian taxation. Copyright (c) The London School of Economics and Political Science 2006.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0335.2006.00556.x
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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 296 (November)
Pages: 573-585

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Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:573-585

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Citations

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Cited by:
  1. Pol Antràs & Robert W. Staiger, 2012. "Offshoring and the Role of Trade Agreements," American Economic Review, American Economic Association, vol. 102(7), pages 3140-83, December.
  2. Emanuel Ornelas & John L. Turner, 2012. "Protection and International Sourcing," Economic Journal, Royal Economic Society, vol. 122(559), pages 26-63, 03.
  3. Yalcintas, Altug, 2010. "The ‘Coase Theorem’ vs. Coase theorem proper: How an error emerged and why it remained uncorrected so long," MPRA Paper 37936, University Library of Munich, Germany.
  4. Alain Herscovici, 2011. "Informação,Conhecimento E Direitos De Propriedade Intelectual: Os Limites Dosmecanismos De Mercado E Das Modalidades De Negociação Privada," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Ian A. MacKenzie & Markus Ohndorf, 2014. "Coasean Bargaining in the Presence of Pigouvian Taxation: Revisiting the Buchanan-Stubblebine-Turvey Theorem," Discussion Papers Series 515, School of Economics, University of Queensland, Australia.

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