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Transaction Costs and the Robustness of the Coase Theorem

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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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~03-03-27.

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Date of creation: 27 Mar 2003
Date of revision:
Handle: RePEc:geo:guwopa:gueconwpa~03-03-27
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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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  9. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  10. Anderlini, L. & Felli, L., 1997. "Costly Coasian Contracts," Cambridge Working Papers in Economics 9704, Faculty of Economics, University of Cambridge.
  11. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, November.
  12. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  13. Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April.
  14. Abrea Dilip & Pearce David & Stacchetti Ennio, 1993. "Renegotiation and Symmetry in Repeated Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 217-240, August.
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