Strategic Manipulation of Property Rights in Coasean Bargaining
In a model of Coasean bargaining over externalities it is described how agents can manipulate their opponent's reservation utility by strategic actions at a pre-bargaining stage, such as the choice of a pollution technology. This may imply misallocation of resources, and opening up trade possibilities will not necessarily lead to a Pareto improvement. This problem is specific to bargaining over externalities and will never occur in the exchange of private goods. It is concluded that the government hat to supplement liability rules by additional restrictions on the agents' rights.
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Volume (Year): 153 (1997)
Issue (Month): 4 (December)
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