The Social Cost Problem, Rights and the (Non)Empty Core

41 Pages Posted: 4 Nov 2016

See all articles by Stéphane Gonzalez

Stéphane Gonzalez

University of Saint Etienne

Alain Marciano

Université de Montpellier; Université Montpellier I - Montpellier Recherche en Economie (Montpellier Research in Economics) MRE

Philippe Solal

University of Saint Etienne

Date Written: November 3, 2016

Abstract

The “Coase theorem” is made of the efficiency and the neutrality theses. Using cooperative game theory, we show that these two theses are not compatible: there exist only two types of rights assignments that guarantee a nonempty core. Thus, the efficiency thesis holds – there exist (two types of) rights assignments under which the core of the game is nonempty – but the neutrality thesis does not hold – for all other rights assignments the core is empty. This complements the results found in the literature on Coase and the core. Our paper also adds two more results. Indeed, we add two principles that are not discussed in the literature about the Coase theorem: a democratic principle for rights assignments and a fairness principle for the monetary payoffs distributed to the agents, that we translate into two natural properties for a solution. We show, and this is our second main result, that the nonempty core requirement is not compatible with our democratic and fairness properties. Thus, under democratic and fairness criteria, the efficiency thesis does not hold.

Keywords: Coase theorem, Core, Neutrality and efficiency theses, Rights, Impossibility results

JEL Classification: C71, D23, K0

Suggested Citation

Gonzalez, Stéphane and Marciano, Alain and Solal, Philippe, The Social Cost Problem, Rights and the (Non)Empty Core (November 3, 2016). Available at SSRN: https://ssrn.com/abstract=2863952 or http://dx.doi.org/10.2139/ssrn.2863952

Stéphane Gonzalez

University of Saint Etienne ( email )

6, rue basse des rives
Saint Etienne, 42023
France

Alain Marciano (Contact Author)

Université de Montpellier ( email )

Avenue Raymond Dugrand, CS 79606
Montpellier Cedex 1, F-34000
France

Université Montpellier I - Montpellier Recherche en Economie (Montpellier Research in Economics) MRE ( email )

Montpellier
France

Philippe Solal

University of Saint Etienne ( email )

6, rue basse des rives
Saint Etienne, 42023
France

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