A Coasean Experiment on Contract Presumptions

33 Pages Posted: 23 Dec 2015

Date Written: June 1, 1988

Abstract

Despite the theoretical importance of the Coase Theorem, scholars have given surprisingly little attention to verifying its predictions empirically. Supporters often accept the theorem as dogma, while armchair critics assail its assumptions. In an exciting series of recent articles, however, Elizabeth Hoffman and Matthew Spitzer have presented experimental evidence, as have others, that largely supports the Coasean prediction that bargainers will negotiate around inefficient property rights to reach a Pareto-optimal solution. The methodology has even gained sufficient attention to have its detractors.

The existing experiments analyze the results of bargains when one side has the power to impose unilaterally one outcome but can negotiate with others for other outcomes. As discussed below, the unilateral power of one side makes these experiments most insightful to the world of property and tort. The present article, by contrast, analyzes the efficiency and distributive effects of a contract presumption, whereby the nominal beneficiary must obtain the contractual consent from the other side before benefiting from the rule. The experiment tends to confirm the Coasean prediction that contract presumptions do not affect the efficiency of bargains. The results question, however, the Coasean wisdom that contract presumptions should not affect the distribution of wealth between the parties.

Keywords: contracts, property law, real estate, property rights

Suggested Citation

Schwab, Stewart Jon, A Coasean Experiment on Contract Presumptions (June 1, 1988). Journal of Legal Studies, Vol. 17, No. 2, 1988, Cornell Legal Studies Research Paper, Available at SSRN: https://ssrn.com/abstract=2706761

Stewart Jon Schwab (Contact Author)

Cornell Law School ( email )

Myron Taylor Hall
#108
Ithaca, NY 14853
United States
607.255.8584 (Phone)
607-255-7193 (Fax)

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