Working Paper: NBER ID: w19943
Authors: Sebastian Galiani; Gustavo Torrens; Maria Lucia Yanguas
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.
Keywords: Political Coase Theorem; Limited Commitment; Laboratory Experiment
JEL Codes: C92; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| commitment opportunities (D70) | social outcomes (I14) |
| low commitment (D23) | social cooperation (D70) |
| high commitment (M54) | social cooperation (D70) |
| large improvements in commitment (D29) | social surplus (D69) |
| small changes in commitment (D91) | social surplus (D69) |