Abstract
There is no mechanism that guarantees existence and Pareto optimality of equilibrium in all situations if each individual has limited property rights and a utility function that depends upon his neighbour's consumption. This is true under virtually any assumption about coalition formation. Therefore, Sen's paradox of the Paretian liberal is confirmed in an economic exchange setting with limited externalitities, and Coase's conjecture on the efficiency of bargaining with complete information is denied.
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