Costly enforcement of property rights and the Coase theorem

By A. Robson, Stergios Skaperdas. Social Science Research Network, 2008

116 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Law, Management Science and Operations Research

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