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Transaction Costs and the Robustness of the Coase Theorem

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  • Luca Anderlini
  • Leonardo Felli

Abstract

This paper explores the extent to which "ex ante" transaction costs may lead to failures of the Coase Theorem. In particular we identify the basic 'hold-up problem' that arises whenever the parties to a Coasian negotiation have to pay "ex ante costs" for the negotiation to take place. We then show that a 'Coasian solution' to this problem is not available: a Coasian solution typically entails a negotiation about the payment of the costs associated with the future negotiation, which in turn is associated with a fresh set of "ex ante" costs, and hence a new hold-up problem. Copyright 2006 Royal Economic Society.

Suggested Citation

  • Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    • Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:223-245
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    References listed on IDEAS

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    13. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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