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Transaction costs and the robustness of the Coase Theorem

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  • Anderlini, Luca
  • Felli, Leonardo

Abstract

This paper explores the extent to which the presence of ex-ante transaction costs may lead to failures of the Coase Theorem. In particular we identify and investigate the basic ‘hold-up problem’ which arises whenever the parties to a Coasian negotiation have to pay some ex-ante costs for the negotiation to take place. We then show that a ‘Coasian solution’ to this hold-up problem is not available. This is because a Coasian solution to the hold-up problem typically entails a negotation 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 with a new hold-up problem.

Suggested Citation

  • Anderlini, Luca & Felli, Leonardo, 2000. "Transaction costs and the robustness of the Coase Theorem," LSE Research Online Documents on Economics 3591, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:3591
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    References listed on IDEAS

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    More about this item

    Keywords

    Transaction costs; Hold-up Problem; Coase Theorem; Coasian Negotiation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • 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

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