Editing Coase theorem (section)

=== Behavioral criticisms of the Coase theorem ===
Unlike Hahnel and Sheeran, the economist [[Richard Thaler]] highlights the importance of [[behavioral economics]] in explaining the inability to effectively use the Coase Theorem in practice.<ref>{{Cite book|title=Misbehaving|last=Thaler|first=Richard|publisher=W.W. Norton & Company, Inc.|year=2015|isbn=978-0393352795|location=New York}}</ref> Thaler modified his experiments with the Ultimatum game and showed that people were more likely to be concerned with ensuring fairness in negotiations when negotiating over their own tangible property rather than in an abstract sense. This suggests that in practice, people would not be willing to accept the efficient outcomes prescribed by the Coasean bargaining if they deem them to be unfair. So, while the Coase theorem suggests that parties who lose out on property rights should then pursue the property according to how much they value it, this does not often happen in reality. For example, Professor Ward Farnsworth has described how in the aftermath of twenty observed legal [[nuisance]] cases, none of the parties ever attempted to engage in Coasean bargaining (as would be expected to reach the most efficient outcome) because of anger at the unfairness of having to bargain.<ref>{{Cite journal|last=Farnsworth|first=Ward|date=1999-01-01|title=Do Parties to Nuisance Cases Bargain after Judgment? A Glimpse inside the Cathedral|jstor=1600470|journal=The University of Chicago Law Review|volume=66|issue=2|pages=373–436|doi=10.2307/1600470|url=https://chicagounbound.uchicago.edu/uclrev/vol66/iss2/2|url-access=subscription}}</ref> It is possible that Coase and his defenders would simply view this as a non-pecuniary transaction cost, but that may be an unreasonable extension of the concept of transaction costs.

Thaler has also provided experimental evidence for the argument that initial allocations matter, put forth by Duncan Kennedy (as previously noted), among others. When students were trading cash-equivalent tokens, the negotiations resulted in the students who would receive the most cash from a token (as told by the researchers) holding the tokens, as would be predicted by the Coase Theorem. However, when the students were trading property (mugs in this case) that were not directly equivalent to cash, proper Coasean bargaining did not occur as depicted in the adjacent diagram. This is because people generally exhibit an [[endowment effect]], in which they value something more once they actually have possession of it. Thus, the Coase Theorem would not always work in practice because initial allocations of property rights would affect the result of the negotiations.