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Costly enforcement of property rights and the Coase theorem

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  • Alex Robson
  • Stergios Skaperdas

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 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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  • Alex Robson & Stergios Skaperdas, 2008. "Costly enforcement of property rights and the Coase theorem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(1), pages 109-128, July.
    • Handle: RePEc:spr:joecth:v:36:y:2008:i:1:p:109-128
    DOI: 10.1007/s00199-007-0268-x
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    More about this item

    Keywords

    Property rights; Coase theorem; Contests; C70; K40;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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