STRATEGIC MANIPULATION OF PROPERTY-RIGHTS IN COASEAN BARGAINING

In a model of Coasean bargaining over externalities it is described ho w agents can manipulate their opponent's reservation utility by strate gic actions at a pre-bargaining stage, such as the choice of a polluti on technology. This may imply a misallocation of resources, and openin g up trade possibilities will not necessarily lead to a Pareto improve ment. This problem is specific to bargaining over externalities and wi ll never occur in the exchange of private goods. It is concluded that the government has to supplement liability rules by additional restric tions on the agents' rights.