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Bargaining With The State, Robert D. Cooter

Robert Cooter

According to the economic theory of bargaining, each party to a voluntary agreement must receive at least the amount that he can get on his own (“threat value”), plus a share of the surplus from the bargain. Courts frequently monitor bargains between citizens and the state. To protect citizens, the courts should focus on the fairness and efficiency of the threat points of the citizens. Unfortunately, courts often focus on the terms of the agreement, not the threat points. The wrong focus leads courts to impose rules that block bargains that would benefit both parties. I analyze an example where …