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

Published online by Cambridge University Press:  14 March 2025

Richard D. McKelvey  and
Talbot Page
Richard D. McKelvey*
Affiliation:
California Institute of Technology, Div. of Humanities & Soc. Sci. Mail Code 228-77, 1200 E. California Blvd., Pasadena, CA 91125, USA
Talbot Page*
Affiliation:
Brown University, Department of Economics, Providence RI 02912
*
email: rdm@hss.caltech.edu
email: talbot_page@brown.edu
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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.

Keywords

Coase theoremMyerson-Satterthwaite theoremtwo-person bargainingprivate informationincomplete informationbargaining breakdowncooperative and non-cooperative game theory

JEL classification

C78: Bargaining Theory • Matching Theory C92: Laboratory, Group Behavior D82: Asymmetric and Private Information • Mechanism Design
Type
Research Article
Information
Experimental Economics , Volume 3 , Issue 3 , December 2000 , pp. 187 - 213
Copyright
Copyright © 2001 Economic Science Association

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