Transaction costs can encourage Coasean bargaining
AbstractWhen there are three parties, it is well known that the Coase Theorem may not hold even when there are no transaction costs, due to the emptiness of the core of the corresponding cooperative game [Aivazian and Callen (1981)]. We show that the standard Coasean bargaining game involving three parties is strategically equivalent to an asymmetric three player majority game. Hence, when there are three parties, the Coase Theorem fails if and only if the core of the corresponding three player majority game is empty. We use this equivalence result to derive all instances in which the Coase Theorem will and will not hold with three parties, and show that the Coase Theorem will actually hold most (over 80 per cent) of the time. We also demonstrate, in contrast to Aivazian and Callen (2003), that it is always possible to find a set of transaction costs which, when introduced into a frictionless bargaining situation, will cause an empty core to become non-empty. In other words, with suitably designed transaction costs, it is possible for the Coase Theorem to hold in cases where, in the absence of those transaction costs, it would fail to hold. When there are three parties, rather than hindering agreements, transaction costs can encourage Coasean bargaining.
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Bibliographic InfoPaper provided by Griffith University, Department of Accounting, Finance and Economics in its series Discussion Papers in Economics with number economics:201208.
Date of creation: Aug 2012
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More information through EDIRC
Coase Theory; externalities; transaction costs; cooperatives games;
Other versions of this item:
- Robson, Alex, 2012. "Transaction Costs can Encourage Coasean Bargaining," MPRA Paper 40892, University Library of Munich, Germany.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D62 - Microeconomics - - Welfare Economics - - - Externalities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
- NEP-COM-2012-09-16 (Industrial Competition)
- NEP-GTH-2012-09-16 (Game Theory)
- NEP-RES-2012-09-16 (Resource Economics)
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.:
- Martin J Osborne & Ariel Rubinstein, 2009.
"A Course in Game Theory,"
814577000000000225, UCLA Department of Economics.
- Varouj Aivazian & Jeffrey Callen, 2003. "The Core, Transaction Costs, and the Coase Theorem," Constitutional Political Economy, Springer, vol. 14(4), pages 287-299, December.
- Alex Robson & Stergios Skaperdas, 2005.
"Costly Enforcement of Property Rights and the Coase Theorem,"
ANU Working Papers in Economics and Econometrics
2005-455, Australian National University, College of Business and Economics, School of Economics.
- Alex Robson & Stergios Skaperdas, 2008. "Costly enforcement of property rights and the Coase theorem," Economic Theory, Springer, vol. 36(1), pages 109-128, July.
- Alexander R. W. Robson & Stergios Skaperdas, 2002. "Costly Enforcement of Property Rights and the Coase Theorem," CESifo Working Paper Series 762, CESifo Group Munich.
- Aivazian, Varouj A & Callen, Jeffrey L, 1981. "The Coase Theorem and the Empty Core," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 175-81, April.
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