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The Property/Liability Rule Debate

The Property/Liability Rule Debate

(p.183) Chapter Eleven The Property/Liability Rule Debate
Optional Law
Ian Ayres
University of Chicago Press

Most of this book has been concerned with discovering new types of liability rules and identifying which ones are likely to be most efficient in particular contexts. This chapter explores a more traditional question: when are liability rules more efficient than property rules? Liability rules delegate allocational authority—allocational options—to privately informed disputants. The delegation effect gives us strong reasons to believe that liability rules do a better job than property rules in harnessing the private information of disputants. Liability rules are not only options, but those delegated options can also be seen as a specialized form of auction. This harnessing effect can persist in the shadow of bargaining, especially because liability rules have information-forcing qualities unknown to property rules. Guido Calabresi and Douglas Melamed opened our eyes to the fact that both property- and liability-rule protections have had enduring and widespread (but not all-encompassing) usage in virtually every field of law. The chapter shows that transaction costs, investment incentives, correlated values, multiple takings, speculative values, and behavioral theories do not withstand closer analysis.

Keywords:   liability rules, property rules, private information, harnessing, bargaining, Guido Calabresi, Douglas Melamed, transaction costs, correlated values, multiple takings

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