Hold-up and externality: the firm as a nexus of incomplete rights?
AbstractThe Coasean theory of the firm (Coase, 1937) has flourished with the theory of incomplete contracts. Transaction costs in the form of enforcement costs have been deemed to be the main determinants of the decision to âmakeâ versus âbuyâ. Surprisingly, this stream of literature has almost neglected that transaction costs may also generate incomplete property rights (Coase, 1960). As firmâs activities entail both contractual and property rights, these two domains interfere each other on the decision to carry out a transaction within the firm. When property rights are incomplete, potential externalities may increase the cost of using the price mechanism to procure the assets needed in a given transaction. The resulting 'Coasean firm' would not only centralize incomplete contracts under a unified governance system, but it will also aggregate incomplete property rights under a unified ownership structure.
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Bibliographic InfoArticle provided by Springer in its journal International Review of Economics.
Volume (Year): 59 (2012)
Issue (Month): 2 (July)
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Web page: http://www.springer.com/economics/journal/12232
Other versions of this item:
- Antonio Nicita & Matteo Rizzolli, 2012. "Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?," Department of Economics University of Siena 638, Department of Economics, University of Siena.
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
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