Costly Coasean Bargaining and Property Right Security

Abstract

This paper examines how transaction costs affect Coasean bargaining with secure and insecure property rights in the lab. Consistent with the theory that secure property rights lowers the cost of non-cooperation, we find that bargaining eficiency is inversely related to property right security. Less secure property rights increased economic efficiency twofold. Property owners with secure rights are more likely to opt for their riskless outside option rather than pay the costs of bargaining.