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Costly Enforcement of Property Rights and the Coase Theorem

  • Alex Robson

    ()

  • Stergios Skaperdas

    ()

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 privately, they incur enforcement costs. When the parties bargain, a version of the Coase theorem holds. Despite the additional costs of going to court, other ex post inefficiencies, and the absence of incomplete information, however, going to court may be an equilibrium or ex ante Pareto-superior over settlement; this is especially true in dynamic settings whereby a court decision saves on future enforcement costs. When the parties do not negotiate and go to court the Coase theorem ceases to hold, and a simple rule for the initial assignment of rights maximizes net surplus.

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File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp455.pdf
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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2005-455.

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Length: 34 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:acb:cbeeco:2005-455
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