Property rights, imperfect information, and the Coase theorem

The Cease theorem establishes that under perfect information and zero transaction costs, two parties to an externality will negotiate a solution that is invariant to the initial property right assignment. As with positive transaction costs under perfect information, when one party is imperfectly informed the bargaining solution depends on the initial assignment but not on relative bargaining strengths. However, unlike the perfect information case where the solution favors the agent who bears less transaction costs, here the outcome favors the agent initially assigned the property right regardless of whether the agent is imperfectly informed or makes the initial offer.