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Transaction Costs and the Robustness of the Coase Theorem

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Abstract

We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real-life. This notion has also pervaded a substantial amount of economic literature. We put forth a model of such events using a simple co-insurance problem as backdrop. Undescribable events in our model are understood by economic agents --- their consequences and probabilities are known --- but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We also show that two key ingredients of our model --- probabilities that are finitely additive but fail countable additivity, and a state space that is small (discrete in our model) in a measure-theoretic sense --- are necessary ingredients of any model of undescribable events that delivers our results.

Suggested Citation

  • Nabil Al-Najjar, Luca Anderlini & Leonardo Felli, 2003. "Transaction Costs and the Robustness of the Coase Theorem," Working Papers gueconwpa~03-03-28, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~03-03-28
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    Cited by:

    1. 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.
    2. MacKenzie, Ian A. & Ohndorf, Markus, 2013. "Restricted Coasean bargaining," Journal of Public Economics, Elsevier, pages 296-307.
    3. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    4. Müller, Daniel & Schmitz, Patrick W., 2016. "Transaction costs and the property rights approach to the theory of the firm," European Economic Review, Elsevier, pages 92-107.
    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. 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.
    9. Alex Robson, 2014. "Transaction costs can encourage Coasean bargaining," Public Choice, Springer, vol. 160(3), pages 539-549, September.
    10. 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.
    11. Ian A. MacKenzie & Markus Ohndorf, 2016. "Caps on Coasean transfers," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 566-584.
    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, pages 1-32.
    13. Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute for the Study of Labor (IZA).
    14. 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).
    15. Harstad, Bård, 2016. "The market for conservation and other hostages," Journal of Economic Theory, Elsevier, pages 124-151.
    16. Alex Anas & Richard Arnott, 2004. "Moving costs, security of tenure and eviction," Urban/Regional 0408005, EconWPA.
    17. repec:eee:touman:v:31:y:2010:i:2:p:240-249 is not listed on IDEAS

    More about this item

    Keywords

    Undescribable Events; Incomplete Contracts; Finite Invariance; Fine Variability.;

    JEL classification:

    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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