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Exchange Efficiency with Weak Property Rights

Oren Bar-Gill

Harvard Law School

Nicola Persico

Northwestern University

July 26, 2012

NYU Law and Economics Research Paper No. 12-35

We show that the first welfare theorem obtains independently of the strength of property rights protection. In an exchange setting, a large class of legal rules (what we call generalized liability rules) are exchange-efficient. Included in this class are property rules (generalized liability rules with very large damages Ds), standard liability rules (generalized liability rules with Ds that track the owner's valuation), and even rules which afford possessory interests only very weak protection (generalized liability rules with very small Ds). This result corrects a previous misconception in the literature, and yields the provocative conclusion that strong property rights are not required for exchange efficiency.

Number of Pages in PDF File: 45

Keywords: property rules, liability rules, efficiency

JEL Classification: K11

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Date posted: October 15, 2012 ; Last revised: October 16, 2012

Suggested Citation

Bar-Gill, Oren and Persico, Nicola, Exchange Efficiency with Weak Property Rights (July 26, 2012). NYU Law and Economics Research Paper No. 12-35. Available at SSRN: http://ssrn.com/abstract=2161659 or http://dx.doi.org/10.2139/ssrn.2161659

Contact Information

Oren Bar-Gill (Contact Author)
Harvard Law School ( email )
1563 Massachusetts Avenue
Cambridge, MA 02138
United States
Nicola Persico
Northwestern University ( email )
MEDS Department
542 Jacobs Center
Evanston, IL 60208
United States
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