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    Coase theorem, complexity and transaction costs

    Lee, Jihong and Sabourian, H. (2007) Coase theorem, complexity and transaction costs. Journal of Economic Theory 135 (1), 214 - 235. ISSN 0022-0531.

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    This paper, by introducing complexity considerations, provides a dynamic foundation for the Coase theorem and highlights the role of transaction costs in generating inefficient bargaining/negotiation outcomes. We show, when the players have a preference for less complex strategies, the Coase theorem holds in negotiation models with repeated surplus and endogenous disagreement payoffs if and only if there are no transaction costs. Specifically, complexity considerations select only efficient equilibria in these models without transaction costs while every equilibrium induces perpetual disagreement and inefficiency with transaction costs. We also show the latter is true in the Rubinstein bargaining model with transaction costs.


    Item Type: Article
    Keyword(s) / Subject(s): Coase theorem, efficiency, bargaining, repeated game, transaction cost, complexity, bounded rationality, automaton
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Administrator
    Date Deposited: 02 Aug 2011 10:30
    Last Modified: 02 Aug 2023 16:55


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