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Costly Coasian Contracts

Author

Listed:
  • Luca Anderlini

    (St. John's College, Cambridge)

  • Leonardo Felli

    (London School of Economics)

Abstract

We identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a `contractual solution' to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a `contract over a contract' which generates a fresh set of ex-ante costs, and hence is associated with a new hold-up problem. We conclude the paper investigating two applications of our results to a static and to a dynamic principal-agent model.

Suggested Citation

  • Luca Anderlini & Leonardo Felli, 1996. "Costly Coasian Contracts," Game Theory and Information 9610006, University Library of Munich, Germany, revised 16 Jan 1997.
  • Handle: RePEc:wpa:wuwpga:9610006
    Note: Type of Document - LaTex; prepared on IBM PC - EmTex; to print on PostScript 600DPI; pages: 61 ; figures: included
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Anderlini, Luca & Felli, Leonardo, 2001. "Costly Bargaining and Renegotiation," Econometrica, Econometric Society, vol. 69(2), pages 377-411, March.
    2. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    3. G. Schwartz, 2000. "Contract Incompleteness, Contractual Enforcement and Bureaucracies," Princeton Economic Theory Papers 00s16, Economics Department, Princeton University.
    4. Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.
    5. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
    6. Luca Anderlini & Leonardo Felli, "undated". ""Costly Coasian Contracts''," CARESS Working Papres 97-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.

    More about this item

    Keywords

    Hold-Up Problem; Ex-Ante Contractual Costs; Contracts Over Contracts; Incomplete Contracts; Principal-Agent Problems;

    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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