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Transaction Costs and the Robustness of the Coase Theorem

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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 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 with a new hold-up problem

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  • Luca Anderlini & Leonardo Felli, 2003. "Transaction Costs and the Robustness of the Coase Theorem," Working Papers gueconwpa~03-03-27, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~03-03-27
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    Cited by:

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    3. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    4. L'aszl'o K'allay & Tibor Tak'acs & L'aszl'o Trautmann, 2020. "Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency," Papers 2008.10348, arXiv.org.
    5. Zaman, Md Monowaruz, 2007. "The theoretical aspect of Muhammad Yunus’s dream-'putting poverty in museums'," MPRA Paper 1306, University Library of Munich, Germany, revised 02 Jan 2007.
    6. Hausken, Kjell, 2006. "Jack Hirshleifer: A Nobel Prize left unbestowed," European Journal of Political Economy, Elsevier, vol. 22(2), pages 251-276, June.
    7. Schmitz, Patrick W., 2016. "The negotiators who knew too much: Transaction costs and incomplete information," Economics Letters, Elsevier, vol. 145(C), pages 33-37.
    8. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2019. "Costly Pretrial Agreements," The Journal of Legal Studies, University of Chicago Press, vol. 48(1), pages 159-188.
    9. E. Guzzini & A. Palestrini, 2012. "Coase theorem and exchangeable rights in non-cooperative games," European Journal of Law and Economics, Springer, vol. 33(1), pages 83-100, February.
    10. Baudry, Marc & Faure, Anouk & Quemin, Simon, 2021. "Emissions trading with transaction costs," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    11. Müller, Daniel & Schmitz, Patrick W., 2017. "Optimal ownership of public goods in the presence of transaction costs," Economics Letters, Elsevier, vol. 152(C), pages 88-92.
    12. Geoffrey Black & D. Allen Dalton & Samia Islam & Aaron Batteen, 2014. "The Coasean Framework of the New York City Watershed Agreement," Cato Journal, Cato Journal, Cato Institute, vol. 34(1), pages 1-32, Winter.
    13. Alex Robson, 2014. "Transaction costs can encourage Coasean bargaining," Public Choice, Springer, vol. 160(3), pages 539-549, September.
    14. Ian A. MacKenzie & Markus Ohndorf, 2016. "Caps on Coasean transfers," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 566-584.
    15. Harstad, Bård, 2016. "The market for conservation and other hostages," Journal of Economic Theory, Elsevier, vol. 166(C), pages 124-151.
    16. Piacquadio Paolo G. & Di Bartolomeo Giovanni & Acocella Nicola, 2009. "A simple framework for investigating the properties of policy games," wp.comunite 0059, Department of Communication, University of Teramo.
    17. MacKenzie, Ian A. & Ohndorf, Markus, 2013. "Restricted Coasean bargaining," Journal of Public Economics, Elsevier, vol. 97(C), pages 296-307.
    18. Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute of Labor Economics (IZA).
    19. Kusterer, David J. & Schmitz, Patrick W., 2018. "Government versus Private Ownership of Public Goods: Experimental Evidence," CEPR Discussion Papers 13204, C.E.P.R. Discussion Papers.
    20. David A. Anderson, 2020. "Environmental Exigencies and the Efficient Voter Rule," Economies, MDPI, Open Access Journal, vol. 8(4), pages 1-7, November.
    21. Mishra, Ashok K. & Harris, James Michael & Erickson, Kenneth W. & Hallahan, Charles B., 2008. "What Drives Agricultural Profitability in the U.S.: Application of the DuPont Expansion Model," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    23. Hojman, David E. & Hiscock, Julia, 2010. "Interpreting suboptimal business outcomes in light of the Coase Theorem: Lessons from Sidmouth International Festival," Tourism Management, Elsevier, vol. 31(2), pages 240-249.

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    More about this item

    Keywords

    Transaction Costs; Hold-Up Problem; Coase Theorem; Coasian Negotiation.;
    All these keywords.

    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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