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Property Rights And The Efficiency Of Bargaining

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  • Ilya Segal
  • Michael D. Whinston

Abstract

We show that efficient bargaining is impossible for a wide class of economic settings and property rights. These settings are characterized by (i) the existence of “adverse efficient opt-out types”, whose participation does not change the efficient allocation and who, when they opt out, are the worst type other agents can face, and (ii) non-existence of the “marginal core”, and its multivaluedness with a positive probability. We also examine the optimal allocation of property rights within a given class that satisfies (i), such as simple property rights, liability rules, and dual-chooser rules. We characterize property rights that minimize the expected subsidy required to implement efficiency. With two agents, simple property rights that are optimal in this way maximize the expected surplus at the status quo allocation, but this no longer holds with more agents. We also study “second-best” budget-balanced bargaining under a liability rule. The optimal “second-best” liability rule may differ from, but is often close to, the expectation of the victim's harm, which would be optimal if there were no bargaining. However, liability rules that are close to a simple property right result in a lower expected surplus than the simple property right they are near.

Suggested Citation

  • Ilya Segal & Michael D. Whinston, 2016. "Property Rights And The Efficiency Of Bargaining," Journal of the European Economic Association, European Economic Association, vol. 14(6), pages 1287-1328, December.
  • Handle: RePEc:bla:jeurec:v:14:y:2016:i:6:p:1287-1328
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    File URL: http://hdl.handle.net/10.1111/jeea.12185
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    Citations

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    Cited by:

    1. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2020. "Legal efficiency and consistency," European Economic Review, Elsevier, vol. 121(C).
    2. Daske, Thomas & March, Christoph, 2024. "Efficient incentives with social preferences," Theoretical Economics, Econometric Society, vol. 19(3), July.
    3. Delacrétaz, David & Loertscher, Simon & Mezzetti, Claudio, 2022. "When Walras meets Vickrey," Theoretical Economics, Econometric Society, vol. 17(4), November.
    4. Delacrétaz, David & Loertscher, Simon & Marx, Leslie M. & Wilkening, Tom, 2019. "Two-sided allocation problems, decomposability, and the impossibility of efficient trade," Journal of Economic Theory, Elsevier, vol. 179(C), pages 416-454.
    5. Benito Arruñada & Giorgio Zanarone & Nuno Garoupa, 2019. "Property Rights in Sequential Exchange," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 127-153.
    6. Loertscher, Simon & Mezzetti, Claudio, 2019. "The deficit on each trade in a Vickrey double auction is at least as large as the Walrasian price gap," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 101-106.
    7. Tobias Widmer & Paul Karaenke & Vijayan Sugumaran, 2021. "Two‐sided service markets: Effects of quality differentiation on market efficiency," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 588-604, April.
    8. Daske, Thomas, 2019. "Efficient Incentives in Social Networks: "Gamification" and the Coase Theorem," EconStor Preprints 193148, ZBW - Leibniz Information Centre for Economics.
    9. Mingshi Kang & Charles Z. Zheng, 2023. "Optimal design for redistributions among endogenous buyers and sellers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1141-1180, May.
    10. Carmine Guerriero, 2023. "Property rights, transaction costs, and the limits of the market," Economics of Governance, Springer, vol. 24(2), pages 143-176, June.
    11. Timo Hoffmann & Sander Renes, 2022. "Flip a coin or vote? An experiment on the implementation and efficiency of social choice mechanisms," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 624-655, April.

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