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Transaction costs and the robustness of the Coase Theorem

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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.

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en

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application/pdf

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http://eprints.lse.ac.uk/3591/1/Transaction_costs_and_the_robustness_of_the_Coase_Theorem.pdf

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