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Costly Coasian Contracts

Author

Listed:
  • Luca Anderlini

    (St. John's College, Cambridge)

  • Leonardo Felli

    (London School of Economics)

Abstract

We identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a `contractual solution' to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a `contract over a contract' which generates a fresh set of ex-ante costs, and hence is associated with a new hold-up problem. We conclude the paper investigating two applications of our results to a static and to a dynamic principal-agent model.

Suggested Citation

  • Luca Anderlini & Leonardo Felli, 1996. "Costly Coasian Contracts," Game Theory and Information 9610006, University Library of Munich, Germany, revised 16 Jan 1997.
    • Handle: RePEc:wpa:wuwpga:9610006
    Note: Type of Document - LaTex; prepared on IBM PC - EmTex; to print on PostScript 600DPI; pages: 61 ; figures: included
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Anderlini, Luca & Felli, Leonardo, 2001. "Costly Bargaining and Renegotiation," Econometrica, Econometric Society, vol. 69(2), pages 377-411, March.
    2. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    3. Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.
    4. Luca Anderlini & Leonardo Felli, "undated". ""Costly Coasian Contracts''," CARESS Working Papres 97-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    5. Rey, Patrick & Tirole, Jean, 2001. "Alignement of Interests and the Governance of Joint Ventures," IDEI Working Papers 441, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. G. Schwartz, 2000. "Contract Incompleteness, Contractual Enforcement and Bureaucracies," Princeton Economic Theory Papers 00s16, Economics Department, Princeton University.
    7. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.

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    More about this item

    Keywords

    Hold-Up Problem; Ex-Ante Contractual Costs; Contracts Over Contracts; Incomplete Contracts; Principal-Agent Problems;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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