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An Experimental Study of the Effect of Private Information in the Coase Theorem

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  • Richard McKelvey
  • Talbot Page

Abstract

We investigate, in an experimental setting, the effect of private information on the Coase theorem's predictions of efficiency and allocative neutrality. For a two-person bargaining game, we find significantly more inefficiency and allocative bias in the case of private information compared with the case of complete information. We also find substantial bargaining breakdown, which is not predicted by the Coase theorem. For the case of private information, we reject the Coase theorem in favor of the alternative of a generalized version of the Myerson–Satterthwaite theorem, which predicts inefficiency, allocative bias in the direction of the disagreement point, and some bargaining breakdown. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Richard McKelvey & Talbot Page, 2000. "An Experimental Study of the Effect of Private Information in the Coase Theorem," Experimental Economics, Springer;Economic Science Association, vol. 3(3), pages 187-213, December.
    • Handle: RePEc:kap:expeco:v:3:y:2000:i:3:p:187-213
    DOI: 10.1023/A:1011481916758
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    1. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    2. Coase, R. H., 1990. "The Firm, the Market, and the Law," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226111018, June.
    3. Ordeshook,Peter C., 1986. "Game Theory and Political Theory," Cambridge Books, Cambridge University Press, number 9780521315937, November.
    4. Hurwicz, Leonid, 1995. "What is the Coase Theorem?," Japan and the World Economy, Elsevier, vol. 7(1), pages 49-74, May.
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    1. Strappazzon, Loris & Ha, Arthur & Eigenraam, Mark & Duke, Charlotte & Stoneham, Gary, 2003. "Efficiency of alternative property right allocations when farmers produce multiple environmental goods under the condition of economies of scope," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(01), pages 1-27.
    2. Manuel Willington & Eduardo Saavedra, 2011. "Eficiencia Productiva y Asignación de Cuotas de Pesca en Chile: Teorema de Coase y Asimetrías de Información," ILADES-UAH Working Papers inv264, Universidad Alberto Hurtado/School of Economics and Business.
    3. Steven G. Medema, 2020. "The Coase Theorem at Sixty," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1045-1128, December.
    4. Félix Muñoz-García & Tongzhe Li, 2018. "Explaining Hypothetical Bias Variations Using Income Elasticity of Demand," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 35(3), pages 207-224, September.
    5. Petra Nieken & Patrick W. Schmitz, 2023. "Contracting under asymmetric information and externalities: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 26(5), pages 989-1021, November.
    6. Stoneham, Gary & Chaudhri, Vivek & Ha, Arthur & Strappazzon, Loris, 2003. "Auctions for conservation contracts: an empirical examination of Victoria’s BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 1-24.
    7. repec:hal:wpaper:halshs-00746617 is not listed on IDEAS
    8. Elodie Bertrand, 2014. "Allowing exchanges over externalities: From ban to obligation [Autorisation à l'échange sur des externalités: De l'interdiction à l'obligation]," Post-Print hal-03507657, HAL.
    9. Gary Stoneham & Vivek Chaudhri & Arthur Ha & Loris Strappazzon, 2003. "Auctions for conservation contracts: an empirical examination of Victoria's BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 477-500, December.
    10. Yannick Gabuthy & Nicolas Jacquemet, 2013. "Analyse économique du droit et méthode expérimentale," Post-Print halshs-00746617, HAL.
    11. Kuechle, Graciela & Rios, Diego, 2012. "The Coase theorem reconsidered: The role of alternative activities," International Review of Law and Economics, Elsevier, vol. 32(1), pages 129-134.
    12. McKelvey, Richard D. & Page, Talbot, 2002. "Status Quo Bias in Bargaining: An Extension of the Myerson-Satterthwaite Theorem with an Application to the Coase Theorem," Journal of Economic Theory, Elsevier, vol. 107(2), pages 336-355, December.
    13. Loris Strappazzon & Arthur Ha & Mark Eigenraam & Charlotte Duke & Gary Stoneham, 2003. "Efficiency of alternative property right allocations when farmers produce multiple environmental goods under the condition of economies of scope," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(1), pages 1-27, March.

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