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Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?

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  • Antonio Nicita

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  • Matteo Rizzolli

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Abstract

The Coasean theory of the firm (Coase, 1937) has flourished with the theory of incomplete contracts. Transaction costs in the form of enforcement costs have been deemed to be the main determinants of the decision to ‘make’ versus ‘buy’. Surprisingly, this stream of literature has almost neglected that transaction costs may also generate incomplete property rights (Coase, 1960). As firm’s activities entail both contractual and property rights, these two domains interfere each other on the decision to carry out a transaction within the firm. When property rights are incomplete, potential externalities may increase the cost of using the price mechanism to procure the assets needed in a given transaction. The resulting 'Coasean firm' would not only centralize incomplete contracts under a unified governance system, but it will also aggregate incomplete property rights under a unified ownership structure.

Suggested Citation

  • Antonio Nicita & Matteo Rizzolli, 2012. "Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?," Department of Economics University of Siena 638, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:638
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    File URL: http://repec.deps.unisi.it/quaderni/638.pdf
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    References listed on IDEAS

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    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Lueck, Dean & Miceli, Thomas J., 2007. "Property Law," Handbook of Law and Economics, Elsevier.
      • Dean Lueck & Thomas J. Miceli, 2004. "Property Law," Working papers 2004-04, University of Connecticut, Department of Economics.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    6. repec:dau:papers:123456789/12319 is not listed on IDEAS
    7. Usher, Dan, 1998. "The Coase theorem is tautological, incoherent or wrong," Economics Letters, Elsevier, vol. 61(1), pages 3-11, October.
    8. Antonio Nicita & Matteo Rizzolli & Maria Alessandra Rossi, 2007. "IP Law and Antitrust Law Complementarity when Property Rights are Incomplete," Department of Economics University of Siena 509, Department of Economics, University of Siena.
    9. repec:mes:jeciss:v:30:y:1996:i:4:p:1212-1216 is not listed on IDEAS
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    Cited by:

    1. Antonio Nicita, 2014. "The legacy of R. Coase (1910–2013): toward a theory of institutional 'moving equilibrium'?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(2), pages 93-108, June.
    2. A. Nicita & M. Rizzolli & H. Smith, 2012. "Exploring Coase’s world: an introduction," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(2), pages 111-120, July.

    More about this item

    Keywords

    incomplete property; Coase; Transaction Cost Economics; theory of the firm;

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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