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Can Coasean Bargaining Justify Pigouvian Taxation?

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  • Rosenkranz, Stephanie
  • Schmitz, Patrick W.

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. We show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always trying to exploit all gains from trade, may in fact be solved by taxation. Thus, in our framework Coasean bargaining is not a substitute for Pigouvian taxation; instead it is the very reason for government intervention.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4263.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4263

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Keywords: bargaining; contracts; externalities; hold-up problems; taxation;

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Citations

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Cited by:
  1. 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.
  2. 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].
  3. Emanuel Ornelas & John L. Turner, 2008. "Protection and international sourcing," LSE Research Online Documents on Economics 28511, London School of Economics and Political Science, LSE Library.
  4. Antràs, Pol & Staiger, Robert, 2008. "Offshoring and the Role of Trade Agreements," CEPR Discussion Papers 6966, C.E.P.R. Discussion Papers.
  5. 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.

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