Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) LSE RSS Contact Us YouTube Twitter


Theoretical Economics Paper
Transaction Costs and the Robustness of the Coase Theorem
Luca Anderlini and Leonardo Felli
February 2001
Paper No' TE/2001/409:
Full Paper (pdf)

Tags: transaction costs; hold-up problem; coase theorem; coasian negotiation

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.