Abstract

http://ssrn.com/abstract=998486
 
 

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Consent and Exchange


Oren Bar-Gill


New York University School of Law

Lucian A. Bebchuk


Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

2007

Journal of Legal Studies, Vol. 39, pp. 375-397, 2010.
Harvard Law and Economics Discussion Paper No. 590
NYU Law and Economics Research Paper No. 07-21

Abstract:     
In some cases, the law permits a party that unilaterally provides a benefit to another party to recover the estimated value of this benefit. Despite calls for expanding the set of cases to which such a restitution rule applies, the law commonly applies a mutual consent rule under which a party providing another with a benefit cannot obtain any recovery without securing the advance consent of the beneficiary to the transaction. We provide an efficiency rationale for the undesirability of broad use of the restitution rule by identifying significant adverse ex ante effects of the rule that are avoided by the consent requirement. Even assuming that courts' errors in estimating buyer benefits would be unbiased, a restitution rule would strengthen sellers' hand by providing them with a put option that they may but do not have to use. As a result, the restitution rule would encourage inefficient market entry by low-quality sellers that would not contribute to any efficient transactions but would be able to extract payments from buyers seeking to avoid an exchange with them. Furthermore, the restitution rule would discourage efficient market entry by some or all potential buyers of a good or service. Beyond the restitution rule, we extend our analysis to show that similar adverse effects can also arise from other "pricing" rules that provide buyers or sellers with call or put options to force an exchange at a judicially-determined price.

Number of Pages in PDF File: 25

Keywords: ownership, exchange, restitution, property rights, bargaining

JEL Classification: C72, C78, D23, K10, K11, K1

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Date posted: July 8, 2007 ; Last revised: March 9, 2011

Suggested Citation

Bar-Gill, Oren and Bebchuk, Lucian A., Consent and Exchange (2007). Harvard Law and Economics Discussion Paper No. 590; Journal of Legal Studies, Vol. 39, pp. 375-397, 2010.; Harvard Law and Economics Discussion Paper No. 590; NYU Law and Economics Research Paper No. 07-21. Available at SSRN: http://ssrn.com/abstract=998486

Contact Information

Oren Bar-Gill
New York University School of Law ( email )
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6222 (Phone)
212-995-4590 (Fax)
Lucian A. Bebchuk (Contact Author)
Harvard Law School ( email )
Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-496-3119 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
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