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Transaction Costs and the Robustness of the Coase Theorem

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Abstract

We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real-life. This notion has also pervaded a substantial amount of economic literature. We put forth a model of such events using a simple co-insurance problem as backdrop. Undescribable events in our model are understood by economic agents --- their consequences and probabilities are known --- but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We also show that two key ingredients of our model --- probabilities that are finitely additive but fail countable additivity, and a state space that is small (discrete in our model) in a measure-theoretic sense --- are necessary ingredients of any model of undescribable events that delivers our results.

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~03-03-28.

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Date of creation: 28 Mar 2003
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Handle: RePEc:geo:guwopa:gueconwpa~03-03-28

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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Keywords: Undescribable Events; Incomplete Contracts; Finite Invariance; Fine Variability.;

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References

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  1. Luca Anderlini & Leonardo Felli, . ""Costly Coasian Contracts''," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 97-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  6. 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.
  7. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 257-82, March.
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  9. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
  10. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  11. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  12. Ariel Rubinstein & Asher Wolinsky, 1989. "Renegotiation-Proof Implementation and Time Preferences," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 850, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
  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. Dilip Abreu & David Pearce & Ennio Stacchetti, 1989. "Renegotiation and Symmetry in Repeated Games," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 198, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  16. 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. 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.
  2. Bård Harstad, 2011. "The Market for Conservation and Other Hostages," NBER Working Papers 17409, National Bureau of Economic Research, Inc.
  3. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(5), pages 1126-1143, October.
  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. 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).
  6. E. Guzzini & A. Palestrini, 2012. "Coase theorem and exchangeable rights in non-cooperative games," European Journal of Law and Economics, Springer, vol. 33(1), pages 83-100, February.
  7. MacKenzie, Ian A. & Ohndorf, Markus, 2013. "Restricted Coasean bargaining," Journal of Public Economics, Elsevier, vol. 97(C), pages 296-307.
  8. 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).
  9. 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.
  10. Alex Anas & Richard Arnott, 2004. "Moving costs, security of tenure and eviction," Urban/Regional, EconWPA 0408005, EconWPA.
  11. Ian A. MacKenzie & Markus Ohndorf, 2013. "Caps on Coasean Transfers," Discussion Papers Series 485, School of Economics, University of Queensland, Australia.

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