Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22952
Authors: 
Rosenkranz, Stephanie
Schmitz, Patrick W.
Year of Publication: 
2006
Series/Report no.: 
Bonn econ discussion papers 2006,7
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. However, we show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always exploiting ex post gains from trade through Coasean bargaining, may be solved by government intervention. In this sense, the impossibility to rule out Coasean bargaining (after investments are sunk) may in fact justify Pigouvian taxation.
Subjects: 
Hold-up problem
Bargaining
Contracts
Taxation
Externalities
JEL: 
L14
H23
H21
D62
Document Type: 
Working Paper

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