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

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  1. 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.
  2. Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Makowski, Louis, 1980. "A characterization of perfectly competitive economies with production," Journal of Economic Theory, Elsevier, vol. 22(2), pages 208-221, April.
  4. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  5. Mas-Colell, Andreu, 1975. "A model of equilibrium with differentiated commodities," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 263-295.
  6. 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.
  7. Scotchmer, Suzanne, 1985. "Profit-maximizing clubs," Journal of Public Economics, Elsevier, vol. 27(1), pages 25-45, June.
  8. Rob, R., 1988. "Pollution Claim Settlements Under Private Information," Papers 19-88, Tel Aviv.
  9. Edward Green, 1982. "Equilibrium and efficiency under pure entitlement systems," Public Choice, Springer, vol. 39(1), pages 185-212, January.
  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. 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.
  12. Wooders, Myrna Holtz, 1989. "A Tiebout theorem," Mathematical Social Sciences, Elsevier, vol. 18(1), pages 33-55, August.
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Cited by:
  1. Makowski, L. & Ostroy, J.M., 1991. "The Margin of Appropriation and an Extension of the First Theorem of Welfare Economics," Papers 388, California Davis - Institute of Governmental Affairs.
  2. Gastón Llanes & Stefano Trento, 2010. "Patent Policy, Patent Pools, And The Accumulation Of Claims In Sequential Innovation," UFAE and IAE Working Papers 856.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Conley, John P. & Smith, Stefani C., 2005. "Coasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 41(6), pages 687-704, September.
  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. Wang, Long & Keith Murnighan, J., 2013. "The generalist bias," Organizational Behavior and Human Decision Processes, Elsevier, vol. 120(1), pages 47-61.
  6. Alberto Bisin & Piero Gottardi, 2005. "Efficient Competitive Equilibria with Adverse Selection," CESifo Working Paper Series 1504, CESifo Group Munich.
  7. V.V. Chari & Harold Cole, 1993. "A contribution to the theory of pork barrel spending," Staff Report 156, Federal Reserve Bank of Minneapolis.

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