Private Contracts and Social Inefficiency: Confining the Coase Theorem∗
نویسندگان
چکیده
If people are free to contract, will outcomes be efficient? We study the question through the lens of a non-cooperative model of contract negotiations, considering both compulsory and voluntary participation in negotiations. In either case, we find that all consistent equilibria of the contracting game are efficient in the case of two players. With mandatory participation, efficiency is attainable also in many-player situations. But if participation is voluntary, and there are more than two players, there is a large class of situations in which all consistent equilibria are inefficient due to free-riding. In these cases, efficient contracting would require a different initial distribution of property rights. JEL Codes: C78, D23
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