Does the Prisoner's Dilemma Refute the Coase Theorem?

31 Pages Posted: 2 Jan 2014 Last revised: 7 Sep 2014

See all articles by F. E. Guerra-Pujol

F. E. Guerra-Pujol

University of Central Florida; Pontifical Catholic University of Puerto Rico

Orlando I. Martínez-García

Abogados de America Law Offices, LLC

Date Written: December 31, 2013

Abstract

Two of the most important ideas in economics and law are the “Coase Theorem” and the “Prisoner’s Dilemma.” In this paper, the authors explore the relation between these two influential models through a creative thought-experiment. Specifically, the paper presents a pure Coasean version of the Prisoner’s Dilemma, one in which property rights are well-defined and transactions costs are zero (i.e. the prisoners are allowed to openly communicate and bargain with each other), in order to test the truth value of the Coase Theorem. In addition, the paper explores what effect (a) uncertainty, (b) exponential discounting, (c) and elasticity have on the behavior of the prisoners in the Coasean version of the dilemma. Lastly, the paper considers the role of the prosecutor (and third-parties generally) in the Prisoner’s Dilemma and closes with some parting thoughts about the complexity of the dilemma. The authors then conclude by identifying the conditions under which the Prisoner’s Dilemma refutes the Coase Theorem.

Keywords: Coase Theorem, Prisoner’s Dilemma, Bargaining, Threats and Promises, Uncertainty, Exponential Discounting, Elasticity

JEL Classification: C71, C78, D01, D81, D90

Suggested Citation

Guerra-Pujol, F. E. and Martínez-García, Orlando I., Does the Prisoner's Dilemma Refute the Coase Theorem? (December 31, 2013). John Marshall Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2373635 or http://dx.doi.org/10.2139/ssrn.2373635

F. E. Guerra-Pujol (Contact Author)

University of Central Florida ( email )

Orlando, FL 32816
United States

HOME PAGE: http://www.priorprobability.com

Pontifical Catholic University of Puerto Rico ( email )

Orlando I. Martínez-García

Abogados de America Law Offices, LLC ( email )

P.O. Box 2102
PR-2, Km. 55.1, Corner Palenque 1, Barceloneta, PR
Barceloneta, 00617
Puerto Rico
787-970-1316 (Phone)
787-970-0428 (Fax)

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