ABSTRACT
In the neoclassical tradition, the Nirvana of perfectly competitive markets exempt from transaction costs warrants that all potential gains from trade are exploited and welfare maximization is reached. The Coase Theorem1 replicates this result under milder conditions and stresses that Pareto efficiency occurs whatever the assignment of legal rights. The same tenet also applies to long-term contractual relationships. In eachperiod of an ‘ideal’ long-termcontract, prices and joint profits can be computed going backward from the last to the first short-term contract. Asymmetric information cannot represent a threat to the implementation of the contract, as new information will be shared and renegotiation could modify the division of the surplus. Even in case of the emergence of unforeseen contingencies or free-riding behaviour in the implementation of the contractual clauses, an efficient outcome is guaranteed. In fact, an ‘internal enforcement’ such as a punishment or a reward would be implemented.2
