“Transaction Costs and the Robustness of the Coase Theorem”

Luca Anderlini and Leonardo Felli

Economic Journal, 2005, forthcoming

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” that 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 negotiation 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.

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