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The social cost problem, rights and the (non)empty core

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  • Stéphane Gonzalez

    (UJM - Université Jean Monnet - Saint-Étienne, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Alain Marciano

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Philippe Solal

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We revisit the “Coase theorem” through the lens of a cooperative game model which takes into account the assignment of rights among agents involved in a problem of social cost. We consider the case where one polluter interacts with many potential victims. Given an assignment or a mapping of rights, we represent a social cost problem by a cooperative game. A solution consists in a payoff vector. We introduce three properties for a mapping of rights. First, core compatibility indicates that the core of the associated cooperative games is nonempty. Second, Kaldor‐Hicks core compatibility indicates that there is a payoff vector in the core where victims are fully compensated for the damage once the negotiations are completed. Third, no veto power for a victim says that no victim has the power to veto an agreement signed by the rest of the society. We then demonstrate two main results. First, core compatibility is satisfied if and only if the rights are assigned either to the polluter or to the entire set of victims. Second, there is no mapping of rights satisfying Kaldor‐Hicks core compatibility and no veto power for a victim.
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Suggested Citation

  • Stéphane Gonzalez & Alain Marciano & Philippe Solal, 2017. "The social cost problem, rights and the (non)empty core," Post-Print halshs-01660994, HAL.
    • Handle: RePEc:hal:journl:halshs-01660994
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    Cited by:

    1. L'aszl'o K'allay & Tibor Tak'acs & L'aszl'o Trautmann, 2020. "Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency," Papers 2008.10348, arXiv.org.
    2. Greg Leo & Jian Lou & Martin Van der Linden & Yevgeniy Vorobeychik & Myrna Wooders, 2021. "Matching soulmates," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 822-857, October.
    3. Encarnaciön Algaba & Sylvain Béal & Eric Rémila & Phillippe Solal, 2018. "Harsanyi power solutions for cooperative games on voting structures," Working Papers 2018-05, CRESE.
    4. Techer, Kevin, 2021. "Stable agreements through liability rules: A multi-choice game approach to the social cost problem," Mathematical Social Sciences, Elsevier, vol. 111(C), pages 77-88.
    5. Maria Gabriella Graziano & Claudia Meo & Nicholas C. Yannelis, 2020. "Shapley and Scarf housing markets with consumption externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1481-1514, September.
    6. Carlos Hervés-Beloso & Francisco Martínez-Concha, 2023. "Coasian rights in a cap-and-trade mechanism with damage compensations," European Journal of Law and Economics, Springer, vol. 56(3), pages 425-441, December.
    7. Aivazian, Varouj A. & Callen, Jeffrey L., 2023. "The Coase Theorem and the empty core: Inspecting the entrails after four decades," International Review of Law and Economics, Elsevier, vol. 73(C).
    8. Jingang Zhao, 2018. "A Reexamination of the Coase Theorem," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 3(1), pages 111-132, December.

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