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Can Coasean bargaining justify Pigouvian taxation?

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  • Stephanie Rosenkranz
  • Patrick W. Schmitz

Abstract

The fact that according to the celebrated Coase Theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always exploiting ex post gains from trade through Coasean bargaining, may be solved by government intervention. In this sense, the impossibility to rule out Coasean bargaining (after investments are sunk) may in fact justify Pigouvian taxation.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse7_2006.

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Length: 24
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:bon:bonedp:bgse7_2006

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Keywords: Hold-up problem; Bargaining; Contracts; Taxation; Externalities;

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References

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Citations

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Cited by:
  1. Alain Herscovici, 2011. "Informação,Conhecimento E Direitos De Propriedade Intelectual: Os Limites Dosmecanismos De Mercado E Das Modalidades De Negociação Privada," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. Ornelas, Emanuel & Turner, John L., 2010. "Protection and International Sourcing," CEPR Discussion Papers 8070, C.E.P.R. Discussion Papers.
  3. Pol Antràs & Robert W. Staiger, 2008. "Offshoring and the Role of Trade Agreements," NBER Working Papers 14285, National Bureau of Economic Research, Inc.
  4. Ian A. MacKenzie & Markus Ohndorf, 2014. "Coasean Bargaining in the Presence of Pigouvian Taxation: Revisiting the Buchanan-Stubblebine-Turvey Theorem," Discussion Papers Series 515, School of Economics, University of Queensland, Australia.
  5. Yalcintas, Altug, 2010. "The ‘Coase Theorem’ vs. Coase theorem proper: How an error emerged and why it remained uncorrected so long," MPRA Paper 37936, University Library of Munich, Germany.

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