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Costly Coasian Contracts

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  • Anderlini, L.
  • Felli, L.

Abstract

The authors identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex ante cost for the contract to become feasible. They then proceed to show that, under plausible circumstances, a contractual solution' to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a `contract over a contract' which generates a fresh set of ex ante costs, and hence is associated with a new hold-up problem. The paper concludes by investigating two applications of the results to a static and to a dynamic principal-agent model.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 9704.

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Date of creation: Jan 1997
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Handle: RePEc:cam:camdae:9704

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Web page: http://www.econ.cam.ac.uk/index.htm

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References

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  1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  2. 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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  4. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
  5. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
  6. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  8. Piccione, Michele, 1992. "Finite automata equilibria with discounting," Journal of Economic Theory, Elsevier, vol. 56(1), pages 180-193, February.
  9. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-50, February.
  10. Eric Maskin & Jean Tirole, 1997. "Unforseen Contingencies, Property Rights, and Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1796, Harvard - Institute of Economic Research.
  11. Barton L. Lipman, 1992. "Limited Rationality and Endogenously Incomplete Contracts," Working Papers 858, Queen's University, Department of Economics.
  12. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 777-93, October.
  13. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
  14. 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.
  15. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  16. 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.
  17. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
  18. Piccione Michele & Rubinstein Ariel, 1993. "Finite Automata Play a Repeated Extensive Game," Journal of Economic Theory, Elsevier, vol. 61(1), pages 160-168, October.
  19. Piccione, M. & Rubinstein, A., 1992. "Finite Automata Play A Repeated Extensive Game," Papers 5-92, Tel Aviv.
  20. 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.
  21. Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 1031-42, October.
  22. 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.
  23. Benoit, Jean-Pierre & Krishna, Vijay, 1993. "Renegotiation in Finitely Repeated Games," Econometrica, Econometric Society, vol. 61(2), pages 303-23, March.
  24. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
  25. Abrea Dilip & Pearce David & Stacchetti Ennio, 1993. "Renegotiation and Symmetry in Repeated Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 217-240, August.
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Citations

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Cited by:
  1. Luca Anderlini & Leonardo Felli, 1998. "Costly Coasian Contracts," STICERD - Theoretical Economics Paper Series 362, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Luca Anderlini & Leonardo Felli, 1999. "Costly Bargaining and Renegotiation," CESifo Working Paper Series 213, CESifo Group Munich.
  3. Luca Anderlini & Leonardo Felli, 2001. "Transaction Costs and the Robustness of the Coase Theorem," STICERD - Theoretical Economics Paper Series 409, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. G. Schwartz, 2000. "Contract Incompleteness, Contractual Enforcement and Bureaucracies," Princeton Economic Theory Papers 00s16, Economics Department, Princeton University.
  5. Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.
  6. Daron Acemoglu, 2002. "Why Not a Political Coase Theorem? Social Conflict, Commitment and Politics," NBER Working Papers 9377, National Bureau of Economic Research, Inc.

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