Coasean Keep-Away: Voluntary Transaction Costs

67 Pages Posted: 4 Mar 2014

See all articles by Jordan M. Barry

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Date Written: March 3, 2014


The Coase Theorem predicts that, if there are no transaction costs, parties will always contract their way to an efficient outcome. Thus, no matter which legal rules society chooses, "Coasean bargains" will lead to efficient results.

There are always some transaction costs. However, transaction costs are often thought to be low when there are no structural impediments to negotiation, such as large numbers of parties or barriers to communication. When these obstacles are not present, it is commonly assumed that the parties will achieve an efficient result through Coasean bargaining. We show that this assumption is incorrect.

In particular, we demonstrate that transaction costs can be high, even when there are no structural impediments to bargaining, because the parties themselves may intentionally create transaction costs. Intuitively, an individual may prefer the Coasean bargain that is struck when certain parties are excluded from negotiations. Accordingly, that individual will wish to create transaction costs that keep those parties — potentially including herself — away from the negotiating table. We show that there are many contexts in which the parties will choose to create these "voluntary transaction costs," including environmental litigation, multilateral treaty negotiations, and creditor-debtor relationships.

Because of the prevalence of voluntary transaction costs, Coasean logic applies to a significantly smaller class of cases than has previously been recognized. This renders law very important: Legal rules provide the starting point for the parties' negotiation; we find that when the parties’ starting point is closer to the efficient result, they are more likely to achieve an efficient outcome through Coasean bargaining. This insight favors reasonable use rules and other legal rules that attempt to assign entitlements in an efficient manner. We also find that liability remedies are more likely to encourage efficient outcomes than injunctive remedies are.

Keywords: Coase Theorem, transaction costs, private ordering, efficiency, liability rules, property rules, remedies, reasonable use

JEL Classification: C71, C78, D23, D47, D69, D79, K00, K11, K13

Suggested Citation

Barry, Jordan and Hatfield, John William and Kominers, Scott Duke, Coasean Keep-Away: Voluntary Transaction Costs (March 3, 2014). San Diego Legal Studies Paper No. 14-149, Available at SSRN: or

Jordan Barry

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

John William Hatfield

University of Texas at Austin ( email )

Austin, TX 78712
United States

Scott Duke Kominers (Contact Author)

Harvard University ( email )

Rock Center
Harvard Business School
Boston, MA 02163
United States


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