Purchase - $38.00

Can Coasean Bargaining Justify Pigouvian Taxation?

13 Pages Posted: 22 Oct 2007  

Stephanie Rosenkranz

Utrecht University - Utrecht University School of Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

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 of ruling out Coasean bargaining (after investments are sunk) may in fact justify Pigouvian taxation.

Suggested Citation

Rosenkranz, Stephanie and Schmitz, Patrick W., Can Coasean Bargaining Justify Pigouvian Taxation?. Economica, Vol. 74, No. 296, pp. 573-585, November 2007. Available at SSRN: https://ssrn.com/abstract=1022696 or http://dx.doi.org/10.1111/j.1468-0335.2006.00556.x

Stephanie Rosenkranz (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paper statistics

Downloads
12
Abstract Views
266