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Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?

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  • Antonio Nicita

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  • Matteo Rizzolli

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Abstract

The 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 Info

Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 638.

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Date of creation: May 2012
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Handle: RePEc:usi:wpaper:638

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Keywords: incomplete property; Coase; Transaction Cost Economics; theory of the firm;

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  1. Antonio Nicita & Matteo Rizzolli & Maria Alessandra Rossi, 2007. "IP Law and Antitrust Law Complementarity when Property Rights are Incomplete," Department of Economics University of Siena 509, Department of Economics, University of Siena.
  2. Brousseau, Eric & Glachant, Jean-Michel, 2008. "New institutional economics: a guidebook," Economics Papers from University Paris Dauphine 123456789/12319, Paris Dauphine University.
  3. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  4. Lueck, Dean & Miceli, Thomas J., 2007. "Property Law," Handbook of Law and Economics, Elsevier.
  5. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  7. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  8. Usher, Dan, 1998. "The Coase theorem is tautological, incoherent or wrong," Economics Letters, Elsevier, vol. 61(1), pages 3-11, October.
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Cited by:
  1. Antonio Nicita, 2014. "The legacy of R. Coase (1910–2013): toward a theory of institutional 'moving equilibrium'?," International Review of Economics, Springer, vol. 61(2), pages 93-108, June.
  2. A. Nicita & M. Rizzolli & H. Smith, 2012. "Exploring Coase’s world: an introduction," International Review of Economics, Springer, vol. 59(2), pages 111-120, July.

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