Bargaining in the Absence of Property Rights: An Experiment

The Coase theorem posits that if (1) property rights are perfect, (2) contracts are perfectly enforceable, (3) transaction costs are zero, (4) preferences are common knowledge, and (5) parties are rational, then the initial allocation of entitlements matters only for distribution, not for efficiency. We study, in an experimental setting, whether condition 1 is necessary. Our results suggest that property rights have a limited effect on efficiency.