Does the Prisoner's Dilemma Refute the Coase Theorem?
31 Pages Posted: 2 Jan 2014 Last revised: 7 Sep 2014
Date Written: December 31, 2013
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: Suggested Citation