Hold-up and Externality: the Firm as a Nexus of Incomplete Rights?

Antonio Nicita () and Matteo Rizzolli

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: The Coasean theory of the firm (Coase, 1937) has flourished with the theory of incomplete contracts. Transaction costs in the form of enforcement costs have been deemed to be the main determinants of the decision to ‘make’ versus ‘buy’. Surprisingly, this stream of literature has almost neglected that transaction costs may also generate incomplete property rights (Coase, 1960). As firm’s activities entail both contractual and property rights, these two domains interfere each other on the decision to carry out a transaction within the firm. When property rights are incomplete, potential externalities may increase the cost of using the price mechanism to procure the assets needed in a given transaction. The resulting 'Coasean firm' would not only centralize incomplete contracts under a unified governance system, but it will also aggregate incomplete property rights under a unified ownership structure.

Keywords: incomplete property; Coase; Transaction Cost Economics; theory of the firm (search for similar items in EconPapers)
JEL-codes: C70 J41 K12 L22 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-bec and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Hold-up and externality: the firm as a nexus of incomplete rights? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:638

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