Property Rules, Liability Rules and Externalities
Journal of Public Finance and Public Choice, Forthcoming
22 Pages Posted: 10 Dec 2007
Abstract
In this paper we argue that traditional explanations of the dichotomisation of property rules and liability rules are somehow misleading, since they tend to neglect the evolutionary complementarity between the two rules in a world of incomplete property rights characterised by sizeable ex-ante transaction costs in rights' definition. When rights are a complete bundle of well-defined uses, the application of a property rule reaffirm and reinforce the correlation between rights and duties. In a world of incomplete rights, externalities over undefined uses call for a court intervention aimed at defining a new property right through either a property rule or a liability rule. Independently of whether new rights are created by property or liability rules, the nature and the extent of future externalities over conflicting undefined uses could generate new processes of rights' definition. The emergence of an externality always implies an evolutionary complementarity between property rules and liability rules whose boundaries actually depend, in alternative legal systems, on the degree of incompleteness of original rights.
Keywords: property rules, liability rules, incomplete rights, externalities
JEL Classification: K10, K11,K12,K13,K14,K21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Dean Lueck and Thomas J. Miceli
-
Property Rights and Liability Rules: The Ex Ante View of the Cathedral
-
The Economic Evolution of Petroleum Property Rights in the United States
By James L. Smith and Gary D. Libecap
-
Property Rights and Property Law
By Dean Lueck and Thomas J. Miceli
-
Towards a Theory of Incomplete Property Rights
By Antonio Nicita, Matteo Rizzolli, ...
-
Optimal Delegation and Decoupling in the Design of Liability Rules
By Ian Ayres and Paul M. Goldbart
-
By Ian Ayres