Can Coasean Bargaining Justify Pigouvian Taxation?

Stephanie Rosenkranz and Patrick Schmitz

No 4263, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The fact that according to the celebrated Coase theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. We show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always trying to exploit all gains from trade, may in fact be solved by taxation. Thus, in our framework Coasean bargaining is not a substitute for Pigouvian taxation; instead it is the very reason for government intervention.

Keywords: Hold-up problems; Bargaining; Contracts; Taxation; Externalities (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 L14 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-mic and nep-pbe
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Can Coasean Bargaining Justify Pigouvian Taxation? (2007)
Working Paper: Can Coasean bargaining justify Pigouvian taxation? (2006)
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