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Can Coasean Bargaining Justify Pigouvian Taxation?

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Author Info
Rosenkranz, Stephanie
Schmitz, Patrick W.

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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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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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  25. Bensaid, Bernard & Gary-Bobo, Robert J, 1993. "Commitment Value of Contracts under Renegotiation Constraints," Econometrica, Econometric Society, vol. 61(6), pages 1423-29, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Emanuel Ornelas & John L. Turner, 2008. "Protection and International Sourcing," CEP Discussion Papers dp0900, Centre for Economic Performance, LSE. [Downloadable!]
  2. Pol Antràs & Robert W. Staiger, 2008. "Offshoring and the Role of Trade Agreements," NBER Working Papers 14285, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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