Buying up the Block: An Experimental Investigation of Capturing Economic Rents Through Sequential Negotiations

Gautam Goswami, Thomas Noe and Jun Wang

The Journal of Law, Economics, and Organization, 2017, vol. 33, issue 1, 139-172

Abstract: This article analyzes an economic experiment designed to measure the effect of “legal technology” on the economic efficiency of Coasian bargaining. In the experiment, the agreement of many agents (called “landowners”) to transfer their property rights to a single agent (called “the developer”) generates an economic surplus. In this setting, we show that a very primitive legal technology sequential cash purchase (SC-P) is a strong implementation of a unique efficient bargaining outcome as a subgame perfect equilibrium. However, when deployed in the laboratory, SC-P results in an average loss of 60% of the economic surplus through inefficient negotiation failure. Deploying a more behaviorally robust but also more legally complex technology, a tender and conditional offer (TC-O) mechanism, halved the surplus loss and supported significant developer payoffs. These results suggest that, even absent asymmetric information, moral hazard, and transactions costs, complex legal technologies can increase bargaining efficiency. (JEL K11, D02, C70)

JEL-codes: C70 D02 K11 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/eww015 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:33:y:2017:i:1:p:139-172.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().