Politics With(Out) Coase

International Review of Economics, Forthcoming

Minnesota Legal Studies Research Paper No. 11-44

21 Pages Posted: 18 Oct 2011 Last revised: 10 Mar 2012

See all articles by Barbara Luppi

Barbara Luppi

University of St. Thomas School of Law; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: October 13, 2011

Abstract

Political markets may be curative of political externalities, yet they are often unviable due to the presence of bargaining externalities. In this paper we study the extent to which the choice of voting dimensions may affect the viability of Coasian bargaining in a political context. The results suggest that bargaining in a multi-dimensional policy space, although desirable in an ideal world of zero-transaction costs, is almost unavoidably affected by bargaining externalities. Disaggregating the policy choices and voting in a one-dimensional policy space can reduce bargaining externalities and lead to median-voter outcomes. Bargaining by a limited number of players in a median-voter situation can achieve a social first-best. We show the equivalence between the outcomes of multiple independent voting in one-dimensional space and the hypothetical outcome of Coasian bargaining in a multi-dimensional policy space.

Keywords: political Coase theorem, political externalities, bargaining externalities, cyclicality

JEL Classification: C70, D23, D60, D80

Suggested Citation

Luppi, Barbara and Parisi, Francesco, Politics With(Out) Coase (October 13, 2011). International Review of Economics, Forthcoming; Minnesota Legal Studies Research Paper No. 11-44. Available at SSRN: https://ssrn.com/abstract=1943695 or http://dx.doi.org/10.2139/ssrn.1943695

Barbara Luppi

University of St. Thomas School of Law

2115 Summit Avenue
Saint Paul, MN 55105
United States

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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