The social cost problem, rights, and the (non)empty core

Abstract

We revisit the "Coase theorem" through the lens of a cooperative game model which takes into account the assignment of rights among agents involved in a problem of social cost. We consider the case where one polluter interacts with many potential victims. Given an assignment or a mapping of rights, we represent a social cost problem by a cooperative game. A solution consists in a payoff vector. We introduce three properties for a mapping of rights. First, core compatibility indicates that the core of the associated cooperative games is nonempty. Second, Kaldor-Hicks core compatibility indicates that there is a payoff vector in the core where victims are fully compensated for the damage once the negotiations are completed. Third, no veto power for a victim says that no victim has the power to veto an agreement signed by the rest of the society. We then demonstrate two main results. First, core compatibility is satisfied if and only if the rights are assigned either to the polluter or to the entire set of victims. Second, there is no mapping of rights satisfying Kaldor-Hicks core compatibility and no veto power for a victim.

Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency – A Game Theory-Based Model of Transaction Costs

“…Further game theory models of the Coase theorem either assume that there is no transaction cost (see [10]) or assume it is a fixed amount (see [11]) and do not address the problem what factors determine the level of transaction costs.…”

A Law-and-Economics Perspective on Cost-Sharing Rules for a Condo Elevator

“…There is a wide-ranging discussion on the relevance of this conclusion (see, e.g. Magnan de Borgnier, 1986;Benoît and Kornhauser, 2002, Gonzales and Marciano, 2017, Gonzales et al, 2018.…”

Stable Agreements through Liability Rules: A Multi-Choice Games Approach to the Social Cost Problem

“…The Coase theorem has been analyzed through the scope of cooperative games by Aivazian and Callen (1981) and more broadly by Gonzalez et al (2019). These articles cover social cost problems which involve more than two agents and formalize the Coase theorem in term of non-emptiness of the core.…”

“…These articles cover social cost problems which involve more than two agents and formalize the Coase theorem in term of non-emptiness of the core. In the present paper, we extend the framework introduced by Gonzalez et al (2019) which investigates situations where one polluter interacts with a set of at least two victims. They introduce mappings of rights that constitute the legal structure of negotiation among agents.…”