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Initially contestable property rights and Coase: Evidence from the lab

L. Friesen,I. MacKenzie,M. Nguyen

Published 2023 in Journal of Environmental Economics and Management

ABSTRACT

This article investigates how the existence of initially contestable property rights affects the efficiency of the Coase theorem. We design a two-stage experiment that incorporates a stage where property rights are initially allocated to participants followed by a stage that allows bargaining between participants. In stage one, participants endogenously choose their effort (and thus the probability) to appropriate the property rights before entering an unstructured bargaining game. We find the presence of costly appropriation activity to obtain the property rights makes it significantly less likely that the efficient outcome is reached. We introduce bargaining costs and find that allowing for symmetric bargaining costs has no impact on the likelihood of the efficient outcome being reached, whereas asymmetric bargaining costs between outcomes substantially reduces the likelihood of reaching an efficient outcome.

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