Resource title

Can Coasean bargaining justify Pigouvian taxation?

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Resource description

The fact that according to the celebrated Coase Theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always exploiting ex post gains from trade through Coasean bargaining, may be solved by government intervention. In this sense, the impossibility to rule out Coasean bargaining (after investments are sunk) may in fact justify Pigouvian taxation.

Resource author

Stephanie Rosenkranz, Patrick W. Schmitz

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22952

Resource license

Adapt according to the presented license agreement and reference the original author.