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The Political Coase Theorem: Experimental Evidence

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  • Sebastian Galiani
  • Gustavo Torrens
  • Maria Lucia Yanguas

Abstract

The Political Coase Theorem (PCT) states that, in the absence of transaction costs, agents should agree to implement efficient policies regardless of the distribution of bargaining power among them. This paper uses a laboratory experiment to explore how commitment problems undermine the validity of the PCT. Overall, the results support theoretical predictions. In particular, commitment issues matter, and the existence of more commitment possibilities leads to better social outcomes. Moreover, we find that the link is valid when commitment possibilities are asymmetrically distributed between players and even when a redistribution of political power is required to take advantage of those possibilities. However, we also find that at low levels of commitment there is more cooperation than strictly predicted by our parameterized model while the opposite is true at high levels of commitment, and only large improvements in commitment opportunities have a significant effect on the social surplus, while small changes do not.

Suggested Citation

  • Sebastian Galiani & Gustavo Torrens & Maria Lucia Yanguas, 2014. "The Political Coase Theorem: Experimental Evidence," NBER Working Papers 19943, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19943
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    Cited by:

    1. Sebastian Galiani & Cheryl Long & Camila Navajas & Gustavo Torrens, 2016. "Horizontal and Vertical Conflict: Experimental Evidence," NBER Working Papers 21857, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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