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Transaction Costs and the Robustness of the Coase Theorem

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  • Luca Anderlini
  • Leonardo Felli

Abstract

This paper explores the extent to which "ex ante" transaction costs may lead to failures of the Coase Theorem. In particular we identify the basic 'hold-up problem' that arises whenever the parties to a Coasian negotiation have to pay "ex ante costs" for the negotiation to take place. We then show that a 'Coasian solution' to this problem is not available: a Coasian solution typically entails a negotiation about the payment of the costs associated with the future negotiation, which in turn is associated with a fresh set of "ex ante" costs, and hence a new hold-up problem. Copyright 2006 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 508 (01)
Pages: 223-245

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:223-245

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  1. Benoit, Jean-Pierre & Krishna, Vijay, 1993. "Renegotiation in Finitely Repeated Games," Econometrica, Econometric Society, vol. 61(2), pages 303-23, March.
  2. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  3. Luca Anderlini & Leonardo Felli, . ""Costly Coasian Contracts''," CARESS Working Papres 97-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
  5. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  6. Ariel Rubinstein & Asher Wolinsky, 1989. "Renegotiation-Proof Implementation and Time Preferences," Discussion Papers 850, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
  8. Dilip Abreu & David Pearce & Ennio Stacchetti, 1989. "Renegotiation and Symmetry in Repeated Games," STICERD - Theoretical Economics Paper Series 198, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  9. Raghuram G. Rajan & Luigi Zingales, 1997. "Power in a Theory of the Firm," NBER Working Papers 6274, National Bureau of Economic Research, Inc.
  10. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
  11. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
  12. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
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  14. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  15. repec:cep:stitep:313 is not listed on IDEAS
  16. Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April.
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Citations

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Cited by:
  1. Bård Harstad, 2013. "The Market for Conservation and Other Hostages," CESifo Working Paper Series 4296, CESifo Group Munich.
  2. Ian A. MacKenzie & Markus Ohndorf, 2012. "Restricted Coasean Bargaining," CER-ETH Economics working paper series 12/156, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Ian A. MacKenzie & Markus Ohndorf, 2013. "Caps on Coasean Transfers," Discussion Papers Series 485, School of Economics, University of Queensland, Australia.
  4. Alex Anas & Richard Arnott, 2004. "Moving costs, security of tenure and eviction," Urban/Regional 0408005, EconWPA.
  5. Hausken, Kjell, 2006. "Jack Hirshleifer: A Nobel Prize left unbestowed," European Journal of Political Economy, Elsevier, vol. 22(2), pages 251-276, June.
  6. Piacquadio Paolo G. & Di Bartolomeo Giovanni & Acocella Nicola, 2009. "A simple framework for investigating the properties of policy games," wp.comunite 0059, Department of Communication, University of Teramo.
  7. Mishra, Ashok K. & Harris, James Michael & Erickson, Kenneth W. & Hallahan, Charles B., 2008. "What Drives Agricultural Profitability in the U.S.: Application of the DuPont Expansion Model," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Guzzini Enrico & Palestrini Antonio, 2009. "Coase theorem and exchangeable rights in non-cooperative games," wp.comunite 0060, Department of Communication, University of Teramo.
  9. Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute for the Study of Labor (IZA).
  10. Zaman, Md Monowaruz, 2007. "The theoretical aspect of Muhammad Yunus’s dream-'putting poverty in museums'," MPRA Paper 1306, University Library of Munich, Germany, revised 02 Jan 2007.
  11. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.

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