Transaction Costs and the Robustness of the Coase Theorem

Abstract

This paper explores the extent to which the presence of ex-ante transaction costs may lead to failures of the Coase Theorem. In particular we identify and investigate the basic 'hold-up problem' which arises whenever the parties to a Coasian negotiation have to pay some ex-ante costs for the negotiation to take place. We then show that a 'Coasian solution' to this hold-up problem is not available. This is because a Coasian solution to the hold-up problem typically entails a negotation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex-ante costs, and hence with a new hold-up problem.

Restricted Coasean Bargaining

“…Most relevant to our paper are the works by Dixit and Olson (2000), Anderlini and Felli (2006), and Robson and Skaperdas (2008). As already mentioned, Dixit and Olson (2000) and Anderlini and Felli (2006) show that Coase bargaining may be inefficient when ex ante transaction costs are incorporated.…”

The transaction costs of semi-public institutions

“…404 Genesis 1:4, 7 and 9, respectively. 405 http://www.merriam-webster.com/dictionary/order [2], definition 5b. (Last visited on January 17, 2009.)…”

“…It follows, Williamson argued, that it should be possible to cast this problem in NIE terms and get the same result. He discovered, however, that he needed to invoke a new kind of transaction, which he called 2 Eg. Winston (2006).…”

“…In the social sciences, there are two things one can do with a theory and the aspect of reality it is meant to explain: one can use the theory to improve reality 2 , or one can use reality to improve the theory. The purpose of the present thesis is very much to do the latter.…”

“…Cf. also Aderlini & Felli (2006). 109 the king nor the French government immediately benefited from any stipulation on this point.…”