The Political Coase Theorem: Experimental Evidence

56 Pages Posted: 3 Mar 2014

See all articles by Sebastian Galiani

Sebastian Galiani

University of Maryland - Department of Economics

Gustavo Torrens

Indiana university

Maria Lucia Yanguas

University of California, Los Angeles (UCLA)

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Date Written: February 2014

Abstract

The Political Coase Theorem (PCT) states that, in the absence of transaction costs, agents should agree to implement efficient policies regardless of the distribution of bargaining power among them. This paper uses a laboratory experiment to explore how commitment problems undermine the validity of the PCT. Overall, the results support theoretical predictions. In particular, commitment issues matter, and the existence of more commitment possibilities leads to better social outcomes. Moreover, we find that the link is valid when commitment possibilities are asymmetrically distributed between players and even when a redistribution of political power is required to take advantage of those possibilities. However, we also find that at low levels of commitment there is more cooperation than strictly predicted by our parameterized model while the opposite is true at high levels of commitment, and only large improvements in commitment opportunities have a significant effect on the social surplus, while small changes do not.

Suggested Citation

Galiani, Sebastian and Torrens, Gustavo and Yanguas, Maria Lucia, The Political Coase Theorem: Experimental Evidence (February 2014). NBER Working Paper No. w19943, Available at SSRN: https://ssrn.com/abstract=2403667

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Gustavo Torrens

Indiana university ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)
47405-7104 (Fax)

Maria Lucia Yanguas

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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