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A reconsideration of the problem of social cost: Free riders and monopolists

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  • V.V. Chari

    (Department of Economics, University of Minnesota, 1035 Heller Hall, Minneapolis, MN 55455, USA)

  • Larry E. Jones

    (Department of Economics, University of Minnesota, 1035 Heller Hall, Minneapolis, MN 55455, USA)

Abstract

One version of the Coase Theorem is, If property rights are fully allocated, competition leads to efficient allocations. This version implies that the public goods problem can be solved by allocating property rights fully. We show that this mechanism is not likely to work well in economies with global externalities because the privatized economy is highly susceptible to strategic behavior: The free-rider problem manifests itself as a complementary monopoly problem in an associated private goods economy. Thus, our work relates the validity of the Coase Theorem to the literature on the incentives for strategic behavior in economies with complementarities.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 16 (2000)
Issue (Month): 1 ()
Pages: 1-22

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Handle: RePEc:spr:joecth:v:16:y:2000:i:1:p:1-22

Note: Received: 12 May 1999; revised version: 9 July 1999
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Related research

Keywords: Public goods; Externalities; Free-rider problem; Complementary monopoly.;

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References

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  2. Makowski, Louis, 1980. "A characterization of perfectly competitive economies with production," Journal of Economic Theory, Elsevier, vol. 22(2), pages 208-221, April.
  3. Rob, R., 1988. "Pollution Claim Settlements Under Private Information," Papers 19-88, Tel Aviv.
  4. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
  5. Wooders, Myrna Holtz, 1989. "A Tiebout theorem," Mathematical Social Sciences, Elsevier, vol. 18(1), pages 33-55, August.
  6. Mas-Colell, Andreu, 1975. "A model of equilibrium with differentiated commodities," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 263-295.
  7. Jones, Larry E., 1987. "The efficiency of monopolistically competitive equilibria in large economies: Commodity differentiation with gross substitutes," Journal of Economic Theory, Elsevier, vol. 41(2), pages 356-391, April.
  8. Roberts, John, 1976. "The incentives for correct revelation of preferences and the number of consumers," Journal of Public Economics, Elsevier, vol. 6(4), pages 359-374, November.
  9. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
  10. Starrett, David A., 1972. "Fundamental nonconvexities in the theory of externalities," Journal of Economic Theory, Elsevier, vol. 4(2), pages 180-199, April.
  11. Scotchmer, Suzanne, 1985. "Profit-maximizing clubs," Journal of Public Economics, Elsevier, vol. 27(1), pages 25-45, June.
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Citations

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Cited by:
  1. Alberto Bisin & Piero Gottardi, 2005. "Efficient Competitive Equilibria with Adverse Selection," CESifo Working Paper Series 1504, CESifo Group Munich.
  2. Louis Makowski & Joseph M. Ostroy, 1991. "The Margin of Appropriation and an Extension of the First Theorem of Welfare Economists," UCLA Economics Working Papers 629, UCLA Department of Economics.
  3. Gastón Llanes & Stefano Trento, 2010. "Patent Policy, Patent Pools, And The Accumulation Of Claims In Sequential Innovation," Working Papers 523, Barcelona Graduate School of Economics.
  4. John P. Conley & Stefani C. Smith, 2004. "Existence and Efficiency of a Price-Taking Equilibrium in an Economy with Public Goods, Externalities and Property Rights: A Coasian Approach," Vanderbilt University Department of Economics Working Papers 0403, Vanderbilt University Department of Economics, revised Jan 2004.
  5. V.V. Chari & Harold Cole, 1993. "A contribution to the theory of pork barrel spending," Staff Report 156, Federal Reserve Bank of Minneapolis.
  6. Wang, Long & Keith Murnighan, J., 2013. "The generalist bias," Organizational Behavior and Human Decision Processes, Elsevier, vol. 120(1), pages 47-61.
  7. Conley, John P. & Smith, Stefani C., 2005. "Coasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 41(6), pages 687-704, September.

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