IN The Problem of Social Cost,1 Ronald Coase investigated the economic effects of liability rules for externalities when the affected parties can bargain with each other. More specifically, Coase posited that a change in a liability rule will leave the agents' production and consumption decisions both unchanged and economically efficient within the following (implicit) framework: (a) two agents to each externality (and bar- gain), (b) perfect knowledge of one another's (convex) production and profit or utility functions, (c) competitive markets, (d) zero transactions costs; (e) costless court system,2 (f) profit-maximizing producers and expected utility-maximizing consumers, (g) no wealth effects, (h) agents will strike mutually advantageous bargains in the absence of transactions costs. This result-commonly called the "Coase Theorem"-has generated a great deal of economic and legal discussion, much of it aimed at exploring the effects of weakening one or another of the model's assumptions.