Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?
AbstractThe Coasean theory of the firm (Coase, 1937) has flourished with the theory of incomplete contracts. Transaction costs in the form of enforcement costs have been deemed to be the main determinants of the decision to ‘make’ versus ‘buy’. Surprisingly, this stream of literature has almost neglected that transaction costs may also generate incomplete property rights (Coase, 1960). As firm’s activities entail both contractual and property rights, these two domains interfere each other on the decision to carry out a transaction within the firm. When property rights are incomplete, potential externalities may increase the cost of using the price mechanism to procure the assets needed in a given transaction. The resulting 'Coasean firm' would not only centralize incomplete contracts under a unified governance system, but it will also aggregate incomplete property rights under a unified ownership structure.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 638.
Date of creation: May 2012
Date of revision:
incomplete property; Coase; Transaction Cost Economics; theory of the firm;
Other versions of this item:
- Antonio Nicita & Matteo Rizzolli, 2012. "Hold-up and externality: the firm as a nexus of incomplete rights?," International Review of Economics, Springer, vol. 59(2), pages 157-174, July.
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-BEC-2012-07-01 (Business Economics)
- NEP-LAW-2012-07-01 (Law & Economics)
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