THE COASE THEOREM IN A RENT-SEEKING SOCIETY

The Coase literature presumes that agents will passively accept a prop erty rights assignment, and then bargain. We use a game-theoretic appr oach to show that rational agents may instead attempt to rent-seek ove r the initial rights distribution. In this additional stage to the Coa se bargaining problem, the parties expend resources in an effort to in fluence the property rights assignment. The characterization of the eq uilibrium in this expanded model suggests that low transactions costs will encourage rent-seeking behavior.