Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76111 
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper No. 762
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
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 privately, they incur enforcement costs. When the parties bargain, a version of the Coase theorem holds. Despite the additional costs of going to court, other ex post ine.ciencies, and the absence of incomplete information, however, going to court may be an equilibrium or ex ante Pareto-superior over settlement; this is especially true in dynamic settings whereby a court decision saves on future enforcement costs. When the parties do not negotiate and go to court the Coase theorem ceases to hold, and a simple rule for the initial assignment of rights maximizes net surplus.
Document Type: 
Working Paper
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