Note: this post was revised and updated on 13 April 2014.
There are only two parties to this particular dispute, a public agency and a private cattle rancher (thus so-called “transaction costs” are low), so what’s preventing them from negotiating a wealth-maximizing Coasean bargain? Maybe the property rights in this particular case are not well-defined. Alternatively, perhaps this conflict should be modeled as a Game of Chicken, since one of the sides just swerved. Can you guess who the chicken was?