Does Voluntary Participation Undermine the Coase Theorem?

Center for Economic Studies Working Paper at University of Munich, Number 139

Posted: 19 Apr 1998

See all articles by Avinash Dixit

Avinash Dixit

Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Mancur Olson

University of Maryland - Department of Economics

Date Written: September 1997

Abstract

The Coase Theorem states that costless enforcement of voluntary agreements yields efficient outcomes. We argue that previous treatments fail to recognize the full meaning of voluntariness: it requires a two-stage game; a non-cooperative participation decision, followed by Coaseian bargaining only among those who choose to participate. We illustrate this in a simple public-goods model, and find outcomes ranging from extremely inefficient to fully efficient. However, the efficient equilibrium is not robust to even very small transaction costs. Thus we cast doubt on Coaseian claims of universal efficiency. Finally, we outline a kind of coercion that restores efficiency.

* Note: Mancur Olson is deceased. Please direct inquiries about his papers to Carol Kaplan at the e-mail address below.

JEL Classification: H73, H77

Suggested Citation

Dixit, Avinash K. and Olson, Mancur, Does Voluntary Participation Undermine the Coase Theorem? (September 1997). Center for Economic Studies Working Paper at University of Munich, Number 139. Available at SSRN: https://ssrn.com/abstract=77248

Avinash K. Dixit (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
609-258-4000 (Phone)
609-258-6419 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Mancur Olson

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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