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Costly Coasian Contracts

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  • Luca Anderlini
  • Leonardo Felli

Abstract

We identify and investigate the basic 'hold-up problem' which arises whenever each party to a contract has to pay some ex-ante cost for the contract to become feasible. We 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.

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File URL: http://sticerd.lse.ac.uk/dps/te/te362.pdf
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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number 362.

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Date of creation: Oct 1998
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Handle: RePEc:cep:stitep:362

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Ex-ante contractual costs; hold-up problem; Coase theorem; contracts over contracts; incomplete contracts.;

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References

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  18. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 777-93, October.
  19. Piccione, M. & Rubinstein, A., 1992. "Finite Automata Play A Repeated Extensive Game," Papers 5-92, Tel Aviv.
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Citations

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Cited by:
  1. Luca Anderlini & Leonardo Felli, 2003. "Transaction Costs and the Robustness of the Coase Theorem," Working Papers gueconwpa~03-03-27, Georgetown University, Department of Economics.
  2. Luca Anderlini & Leonardo Felli, 1998. "Costly bargaining and renegotiation," LSE Research Online Documents on Economics 3592, London School of Economics and Political Science, LSE Library.
  3. G. Schwartz, 2000. "Contract Incompleteness, Contractual Enforcement and Bureaucracies," Princeton Economic Theory Papers 00s16, Economics Department, Princeton University.
  4. Anderlini, L. & Felli, L., 1997. "Costly Coasian Contracts," Cambridge Working Papers in Economics 9704, Faculty of Economics, University of Cambridge.
  5. Daron Acemoglu, 2002. "Why Not a Political Coase Theorem? Social Conflict, Commitment and Politics," NBER Working Papers 9377, National Bureau of Economic Research, Inc.
  6. Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.

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