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Coasean Keep-Away: Voluntary Transaction Costs


The Coase Theorem predicts that, if there are no transaction costs, parties will always contract their way to an efficient outcome. Thus, no matter which legal rules society chooses, "Coasean bargains" will lead to efficient results.

There are always some transaction costs. However, transaction costs are often thought to be low when there are no structural impediments to negotiation, such as large numbers of parties or barriers to communication. When these obstacles are not present, it is commonly assumed that the parties will achieve an efficient result through Coasean bargaining. We show that this assumption is incorrect.

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Note by Scott Kominers
3 years ago

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