Status quo bias in bargaining: an extension of the Myerson-Satterthwaite theorem with an application to the Coase theorem. (Q1867554)

The authors consider the problem of bilateral trade of a divisible good, when there is two-sided incomplete information about the valuations. More specifically, they study whether in such a case, there will be inefficiencies, and if so, whether there is any bias in the direction that outcomes tend to deviate from the efficient allocation. They start from the Myerson-Satterthwaite theorem and its corollary that identify conditions under which bilateral trading leads to inefficiency. They generalise this theorem, investigate the existence of bias when there is no efficient equilibrium, and apply the results to the Coase theorem.