Socially Efficient Scheme to Protect Property Entitlements : Property Rules vs. Liability Rules
Year: 2016
Type: article
Abstract: This paper studies socially optimal legal rules, property and liability rules, for protecting entitlements. We develop a simple three-stage game to model a nuisance situation in which a resident initially owns an entitlement and a polluter economically benefits from obtaining it. We find the following results. First, the resident and polluter fail to make voluntary bargaining as long as the bargaining cost is positive even without asymmetric information. The bargaining cost causes a hold-up problem and the polluter is not willing to come to the negotiation table. Second, the property rule does not enhance voluntary bargaining. These two results are inconsistent with the traditional view in the literature. Third, the liability rules achieve full efficiency with certainty. The result follows the literature.
Authors: TSUCHIHASHI, Toshihiro, 土橋, 俊寛
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7208075993