The fact that according to the celebrated Coase Theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up...

A principal's production decision imposes a negative externality on an agent. The principal may be a pollution-generating firm, the agent may be a nearby town. The principal offers a contract to the agent, who has the right to be free of pollution. Then the agent privately learns the disutility...

Using a simple bilateral trading example with discrete valuations and costs (based on Matsuo, Journal of Economic Theory, 1989), this note demonstrates that in the presence of private information the efficiency of Coasean bargaining may in some situations be strictly enhanced if initially no...