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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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Paper provided by Penn Economics Department in its series Penn CARESS Working Papers with number c5b2efc4326ca8bb8162440d62ce6510.

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Handle: RePEc:cla:penntw:c5b2efc4326ca8bb8162440d62ce6510

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  1. 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.
  2. 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.
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Citations

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Cited by:
  1. Anderlini, L. & Felli, L., 1997. "Costly Coasian Contracts," Cambridge Working Papers in Economics 9704, Faculty of Economics, University of Cambridge.
  2. Luca Anderlini & Leonardo Felli, 2000. "Transaction costs and the robustness of the Coase Theorem," LSE Research Online Documents on Economics 3591, London School of Economics and Political Science, LSE Library.
  3. 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.
  4. Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.
  5. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
  6. G. Schwartz, 2000. "Contract Incompleteness, Contractual Enforcement and Bureaucracies," Princeton Economic Theory Papers 00s16, Economics Department, Princeton University.

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