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Abstract:
We consider a setting in which the buyer's ability to hold up a seller's investment is so severe that there is no investment in equilibrium of the static game typically analyzed. We show that there exists an equilibrium of a dynamic game generating positive investment. The seller makes a sequence of gradually smaller investments, each repaid by the buyer under the threat of losing further seller investment. As modeled frictions converge to zero, the equilibrium outcome converges to the first best. We draw connections between our work and the growing literature on gradualism in public good contribution games and bargaining games.

hold-up problem, gradualism, incomplete contracts, investment, contribution games

Abstract:
We construct a model in which an investment opportunity arises for a first mover before it knows the identity of a second mover and in which joint location results in a negative externality. Contracts are inherently incomplete since the first mover cannot bargain over its ex ante investment decision with the anonymous second mover. Given this departure from the setting of the Coase Theorem, the allocation of property rights over the externality has real effects on social welfare. We investigate the relative efficiency of property rights regimes used in practice: injunctions, damages, the ruling in the Spur Industries case, etc. The first best can be obtained by allocating property rights (in particular the right to sue for damages) to the second mover. Allocating property rights to the first mover, as a "coming to the nuisance" rule entails, leads to overinvestment. In contrast to conventional wisdom, this inefficiency persists even if a monopoly landowner controls all the land on which the parties may locate.

Abstract:
We construct a model in which a first mover decides on its location before it knows the identity of the second mover; joint location results in a negative externality. Contracts are inherently incomplete since the first mover's initial location decision cannot be specified to an anonymous second mover. The allocation of property rights over the externality has real effects on social welfare. The "coming to the nuisance" rule, which allocates property rights to the first mover, protects the first mover's investment from expropriation, but may lead it to invest excessively, and thus may be dominated by second-mover rights. In contrast to conventional wisdom, inefficiencies still arise even if a monopoly landowner controls all the land on which the parties may locate. We derive optimal rights regimes, but the focus of our analysis is on property rights regimes used in practice, an analysis which leads us to challenge a number of established results in law and economics including the Calabresi-Melamed rule on injunctions versus damages, the efficacy of rights contingent on land-improving investment, and Coase's insight on the irrelevance of the identity of the polluter.

Abstract:
One of Coase's central insights is that distinguishing between the generator and recipient of an externality is of limited value because externality problems are reciprocal. We reconsider the relevance of the identity of the generator in a model with non-contractible investment ex ante but frictionless bargaining over the externality ex post. In this framework, a party may distort its investment to worsen the other's threat point in bargaining. We demonstrate that the presence of this distortion depends, among other factors, on whether the investing party is a generator. Social efficiency can sometimes be improved by conditioning property rights on the identity of the generator: for example, assigning damage rights if the rights holder is a generator and injunction rights if the rights holder is a recipient can be more efficient than either unconditional damage or injunction rights.

externality, polluter, transactions cost, reciprocal harm

Abstract:
Pierson v. Post, an 1805 New York case, concerns the ownership of a dead fox; Post had organized a fox hunt and was pursuing a fox, when Pierson appeared and killed the animal. The rule established by the court in this case (awarding ownership to Pierson) has proven to be highly influential. This article undertakes an economic analysis of the issues raised by the case. The incentives for the killing of foxes created by the court's rule and the alternative rule, giving property rights to Post, advocated in a vigorous dissent by Justice Livingston are analyzed. The consequences for social welfare are derived under various circumstances; the formal approach leads to a number of new insights. Finally, the implications of this analysis for contemporary issues in property law are explored through an application to the phenomenon of cybersquatting (involving the ownership of Internet domain names).

Abstract:
Negotiations between a country in default and its international creditors are modeled as a dynamic game in an environment of weak contractual enforcement. The country cannot borrow internationally until it settles with all creditors. Delay arises in equilibrium as creditors engage in strategic hold-up. The model confirms the conventional wisdom that delay increases with more creditors, and with the advent of "vulture" creditors. Contrary to conventional wisdom, putting collective action clauses into bond contracts may increase delay via free-riding on negotiation costs, even while preventing strategic holdup and reducing total negotiation costs. Secondary debt markets consolidate debt with high -- and disperse debt with low -- creditor bargaining power. Whether secondary markets reduce or increase delay depends on the interaction between strategic holdup and debt consolidation effects. The analysis contributes to the theory of multi-player dynamic timing games through a general treatment of the comparative dynamics used to answer key applied questions about sovereign debt negotiation.

Sovereign debt, sovereign default, bargaining, delays in bargaining, holdout, free riding, vulture creditors, secondary markets

Abstract:
We develop a model to assist policy-makers in their choice between private and public ownership for a broad range of activities, based on managers ability to divert resources through perks or pet projects. Qualitative information is always required to demonstrate that public ownership is optimal. More public firms are synonymous with greater control of such actions, but generate greater bureaucracy costs. The flat incentives faced by public managers can be socially desirable when commercially productive activities generate large social harms relative to profit, but are undesirable when these activities are either benign or create external social benefits. Applications are discussed.

Abstract:
Pierson v. Post, an 1805 New York case, concerns the ownership of a dead fox; Post had organized a fox hunt and was pursuing a fox, when Pierson appeared and killed the animal. The rule established by the court in this case (awarding ownership to Pierson) has proven to be highly influential. This paper undertakes an economic analysis of the issues raised by the case. The incentives for the killing of foxes created by the court's rule and the alternative rule, giving property rights to Post, advocated in a vigorous dissent by Justice Livingston are analyzed. The consequences for social welfare are derived under various circumstances; the formal approach leads to a number of new insights. Finally, the implications of this analysis for contemporary issues in property law are explored through an application to the phenomenon of "cybersquatting" (involving the ownership of internet domain names).

Property rights, property law, wildlife law, rule of capture, cybersquatting

Abstract:
Pierson v. Post, an 1805 New York case, concerns the ownership of a dead fox; Post had organized a fox hunt and pursuing a fox, when Pierson appeared and killed the animal. The rule established by the court in this case (awarding ownership to Pierson) has proven to be highly influential. This paper undertakes an economic analysis of the issues raised by the case. The incentives for the killing of foxes created by the court's rule and the alternative rule, giving property rights to Post, advocated in a vigorous dissent by Justice Livingston are analyzed. The consequences for social welfare are derived under various circumstances; the formal approach leads to a number of new insights. Finally, the implications of this analysis for contemporary issues in property law are explored through applications to the areas of oil and gas, the broadcast spectrum, and "cybersquatting" (involving the ownership of internet domain names).

Abstract:
A model of externalities with sequential location choice is developed. The first mover decides on location before it knows the identity of the second mover. Joint location leads to a negative externality. The court, having limited information, allocates property rights over the externality based on the timing of location. Sufficient conditions are presented supporting the "coming to the nuisance" doctrine. This doctrine is not always supported: we characterize cases where greater social surplus may be generated by giving property rights to the second mover. A sufficient condition is presented guaranteeing optimality for any property rights allocation. It is also demonstrated that allocating property rights on the basis of stand-alone benefits does not guarantee efficiency.