In this excellent answer, Ubiquitous elaborates on the Coasian solution as an alternative to Pigouvian subsidies. I wanted to explore and understand the solution a bit further.

Consider the setting in this question - a set of agents facing losses $l_i$ and making investments $c_i$. The loss $l_i$ is a function of others' investments as well, i.e., $l_i=f_i(c_i,i=1,2,\ldots,N)$. Let us also assume that a bargaining hierarchy exists - agent $i$ has greater bargaining power than agent $i-1$.

  1. How does one achieve the socially optimal investment levels in this problem through Coasian bargaining?

  2. How does the answer change when there are connections among agents, as in commodity flow networks? Are there papers that study such bargaining across different tiers in such networks?



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