To date, there has been little analysis of a very basic question: to whom should courts give the initial entitlement? Most authors suggest that courts should grant the initial entitlement to the litigant it believes to have the higher valuation. To maximize allocative efficiency, courts should focus on delegating the allocative choice to the litigant who is the more efficient chooser. From the perspective of the initial entitlement holder, liability rules seem to have compensation as their central aim, whereas from an efficiency perspective liability rules are a means by which an imperfectly informed court can delegate allocative choice to private litigants who potentially have superior allocative information. The allocative efficiency of single-chooser rules is maximized when damages are set equal to the nonchooser's expected value. This chapter discusses single-chooser rules and how courts should determine (allocatively) optimal damage amount for the defendant-choice rules. It demonstrates that the court can decouple questions of distribution from questions of allocation.
Keywords: allocative efficiency, courts, allocative choice, liability rules, single-chooser rules, optimal damage, defendant-choice rules, distribution, allocation