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Transaction Costs and the Robustness of the Coase Theorem

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  • Luca Anderlini
  • Leonardo Felli

Abstract

This paper explores the extent to which the presence of ex-ante transaction costs may lead to failures of the Coase Theorem. In particular we identify and investigate the basic 'hold-up problem' which arises whenever the parties to a Coasian negotiation have to pay some ex-ante costs for the negotiation to take place. We then show that a 'Coasian solution' to this hold-up problem is not available. This is because a Coasian solution to the hold-up problem typically entails a negotation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex-ante costs, and hence with a new hold-up problem.

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File URL: http://sticerd.lse.ac.uk/dps/te/te409.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 409.

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Date of creation: Feb 2001
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Handle: RePEc:cep:stitep:409

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

Related research

Keywords: Transaction costs; Hold-up Problem; Coase Theorem; Coasian Negotiation;

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References

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  2. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
  3. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
  4. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
  5. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  6. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  7. Benoit, Jean-Pierre & Krishna, Vijay, 1993. "Renegotiation in Finitely Repeated Games," Econometrica, Econometric Society, vol. 61(2), pages 303-23, March.
  8. 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.
  9. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  10. 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.
  11. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, vol. 82(3), pages 600-614, June.
  12. 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.
  13. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  14. 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.
  15. 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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Citations

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Cited by:
  1. Piacquadio Paolo G. & Di Bartolomeo Giovanni & Acocella Nicola, 2009. "A simple framework for investigating the properties of policy games," wp.comunite 0059, Department of Communication, University of Teramo.
  2. Alex Anas & Richard Arnott, 2004. "Moving costs, security of tenure and eviction," Urban/Regional 0408005, EconWPA.
  3. Ian A. MacKenzie & Markus Ohndorf, 2013. "Caps on Coasean Transfers," Discussion Papers Series 485, School of Economics, University of Queensland, Australia.
  4. Hausken, Kjell, 2006. "Jack Hirshleifer: A Nobel Prize left unbestowed," European Journal of Political Economy, Elsevier, vol. 22(2), pages 251-276, June.
  5. Bård Harstad, 2011. "The Market for Conservation and Other Hostages," NBER Working Papers 17409, National Bureau of Economic Research, Inc.
  6. MacKenzie, Ian A. & Ohndorf, Markus, 2013. "Restricted Coasean bargaining," Journal of Public Economics, Elsevier, vol. 97(C), pages 296-307.
  7. Mishra, Ashok K. & Harris, James Michael & Erickson, Kenneth W. & Hallahan, Charles B., 2008. "What Drives Agricultural Profitability in the U.S.: Application of the DuPont Expansion Model," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Guzzini Enrico & Palestrini Antonio, 2009. "Coase theorem and exchangeable rights in non-cooperative games," wp.comunite 0060, Department of Communication, University of Teramo.
  9. Zaman, Md Monowaruz, 2007. "The theoretical aspect of Muhammad Yunus’s dream-'putting poverty in museums'," MPRA Paper 1306, University Library of Munich, Germany, revised 02 Jan 2007.
  10. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
  11. Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute for the Study of Labor (IZA).

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