Coase Theorem, Elizabeth Hoffman, Matthew Spitzer, Efficiency hypothesis, Coercive contract rules, Milwaukee Spring cases, Contract presumptions
Contracts | Property Law and Real Estate
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.
Schwab, Stewart J., "A Coasean Experiment on Contract Presumptions" (1988). Cornell Law Faculty Publications. 535.
Published in: Journal of Legal Studies, vol. 17, no. 2 (June 1988).