BARGAINING UNDER RULES VERSUS STANDARDS

The efficiency of two-party incomplete information sequential bargaini ng over an entitlement relating to external harm is analyzed under two alternative property rights regimes: definite entitlements, where a r ule allocates the entitlement to one of the parties in an ex ante cert ain way; and contingent entitlements, where the assignment of the enti tlement depends on the outcome of an ex post judicial balancing test t hat weighs the value of the activity against the external harm it gene rates. It is shown that a contingent entitlement may make credible a t hreat to take-cause harm without consent-that is not credible under a definite entitlement, and that such a credible taking threat may suppl ant strategic delay as a screening device. Such a threat may induce im mediate ex post efficient agreement. However, such a result obtains as a Perfect Bayesian Equilibrium only if the legal balancing process is imperfect in measuing and balancing harm against value.