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Testing the Bargaining Model

Testing the Bargaining Model

(p.166) Chapter Ten Testing the Bargaining Model
Optional Law
Ian Ayres
University of Chicago Press

As a matter of theory, liability rules might be more efficient than property rules even when bargaining is possible. But there are reasons to be skeptical of the result. This chapter describes the results of experiments conducted in seven different classes at five law schools. The students were divided into pairs of bargainers and assigned to play the roles of a drive-in owner and a racetrack owner in a dispute inspired by a real case. The dispute concerned the external effect of a racetrack on a neighboring drive-in theater. In the bargaining game, the only issue for negotiation was whether the racetrack would operate at night. The track could increase its profits by operating at night, but doing so would decrease the profits of the adjacent drive-in (because the lights diminish the clarity of the picture). The disputants had private information about their valuations. The results show that liability rules evince a strong information-forcing effect, with high-value plaintiffs trying to bribe and low-value plaintiffs trying to sell. More important, liability rules produce slightly higher allocative efficiency.

Keywords:   liability rules, property rules, bargaining, private information, information-forcing effect, allocative efficiency, high-value plaintiffs, low-value plaintiffs

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