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Decentralization, Externalities, and Efficiency

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  • Klibanoff, Peter
  • Morduch, Jonathan

Abstract

In the competitive model, externalities lead to inefficiencies and inefficiencies increase with the size of externalities. However, as argued by R. H. Coase (1960), these problems may be mitigated in a decentralized system through voluntary coordination. The authors show how coordination is limited by the combination of two factors: respect for individual autonomy and the existence of private information. Together they imply that efficient outcomes can only be achieved through coordination when external effects are relatively large. Moreover, there are instances in which coordination cannot yield any improvement at all, despite common knowledge that social gains from agreement exist. Copyright 1995 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 62 (1995)
Issue (Month): 2 (April)
Pages: 223-47

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Handle: RePEc:bla:restud:v:62:y:1995:i:2:p:223-47

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Cited by:
  1. Rosenkranz, Stephanie & Schmitz, Patrick W., 2002. "Book Review of “Bargaining Theory with Applications” (Muthoo, 1999)," MPRA Paper 6973, University Library of Munich, Germany.
  2. Schmitz, Patrick W., 2002. "Simple contracts, renegotiation under asymmetric information, and the hold-up problem," European Economic Review, Elsevier, vol. 46(1), pages 169-188, January.
  3. Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," MPRA Paper 12531, University Library of Munich, Germany.
  4. Lulfesmann, Christoph, 2002. "Central governance or subsidiarity: A property-rights approach to federalism," European Economic Review, Elsevier, vol. 46(8), pages 1379-1397, September.
  5. Albert Park & Minggao Shen, 2002. "A Refinancing Model of Decentralization with Empirical Evidence from China," William Davidson Institute Working Papers Series 461, William Davidson Institute at the University of Michigan.
  6. Martin Besfamille & Jean-Marie Lozachmeur, 2008. "NIMBY and mechanism design under different constitutional constraints," Department of Economics Working Papers 2008-11, Universidad Torcuato Di Tella.
  7. Bester, Helmut & Wärneryd, Karl, 2006. "Conflict and the Social Contract," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 94, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Balazs Szentes & Peter Eso, 2004. "The Price of Advice," Econometric Society 2004 North American Summer Meetings 560, Econometric Society.
  9. Helmut Bester & Karl Warneryd, . "Conflict Resolution under Asymmetric Information," Papers 006, Departmental Working Papers.
  10. Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany.
  11. Schmitz, Patrick W., 2010. "Contractual solutions to hold-up problems with quality uncertainty and unobservable investments," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 807-816, September.
  12. Eahab Elsaid & Wallace Davidson & Xiaoxin Wang, 2011. "CEO successor compensation: outside versus inside successions," Journal of Management and Governance, Springer, vol. 15(2), pages 187-205, May.
  13. Schmitz, Patrick W., 2006. "Book Review of “Contract Theory” (Bolton and Dewatripont, 2005)," MPRA Paper 6977, University Library of Munich, Germany.
  14. Frank Jensen & Niels Vestergaard, 1999. "Regulation of Renewable Resources in Federal Systems: The Case of Fishery in th EU," Working Papers 3/99, University of Southern Denmark, Department of Environmental and Business Economics.
  15. Per Andersen & Frank Jensen, 2003. "Local Pollution in Federal Systems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 417-428, November.

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