Costly enforcement of property rights and the Coase theorem |
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Authors: | Alex Robson Stergios Skaperdas |
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Institution: | (1) School of Economics, College of Business and Economics, Australian National University, Canberra, ACT, 2600, Australia;(2) Department of Economics, University of California, Social Science Plaza, Irvine, CA 92697-5100, USA |
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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
and go to court, a simple rule for the initial ambiguous assignment of property rights maximizes net surplus.
A paper circulated under the same title and dated 6 March 2000 contained the basic structure examined in this paper, but did
not develop many of the results reported here. For comments, we would like to thank participants at the WZB-CEPR contests
conference and seminar audiences at the University of Southern California, the University of British Columbia, UC Davis, and
UC Riverside. |
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Keywords: | Property rights Coase theorem Contests |
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