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  • Costly enforcement of property rights and the Coase theorem

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    Author(s)
    Robson, Alex
    Skaperdas, Stergios
    Griffith University Author(s)
    Robson, Alex
    Year published
    2008
    Metadata
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    Abstract
    We examine a setting in which property rights are initially ambiguously defined. Whether the parties go to court to remove the ambiguity or bargain and settle before or after trial, they incur enforcement costs. When the parties bargain, a version of the Coase theorem holds. However, despite the additional costs of going to court, other ex-post inefficiencies, and the absence of incomplete information, going to court may ex-ante Pareto dominate settling out of court. This is especially true in dynamic settings, where obtaining a court decision today saves on future enforcement costs. When the parties do not negotiate ...
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    We examine a setting in which property rights are initially ambiguously defined. Whether the parties go to court to remove the ambiguity or bargain and settle before or after trial, they incur enforcement costs. When the parties bargain, a version of the Coase theorem holds. However, despite the additional costs of going to court, other ex-post inefficiencies, and the absence of incomplete information, going to court may ex-ante Pareto dominate settling out of court. This is especially true in dynamic settings, where obtaining a court decision today saves on future enforcement costs. When the parties do not negotiate and go to court, a simple rule for the initial ambiguous assignment of property rights maximizes net surplus.
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    Journal Title
    Economic Theory
    Volume
    36
    Issue
    1
    DOI
    https://doi.org/10.1007/s00199-007-0268-x
    Copyright Statement
    © 2008 Springer Berlin / Heidelberg. This is an electronic version of an article published in Economic Theory, Vol. 36(1), pp. 109-128, 2008. Economic Theory is available online at: http://www.springerlink.com/ with the open URL of your article.
    Subject
    Economic Theory not elsewhere classified
    Economic Theory
    Applied Economics
    Econometrics
    Publication URI
    http://hdl.handle.net/10072/44402
    Collection
    • Journal articles

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