23 Pages Posted: 23 Jan 2012 Last revised: 7 Feb 2012
Date Written: January 23, 2012
A persistent theme in the literature on property rights suggests that perfect state protection of private property rights would provide owners with an optimal incentive to invest in their assets. In this Essay, we challenge this view. Specifically, we argue that in many instances, perfect state protection would result in over-investment in resources. This is because perfect enforcement gives rise to a problem akin to the moral hazard problem that plagues insurance markets. In addition to pointing out this problem, we define the conditions under which it may arise in the real world and discuss the measures law should take in order to combat it. To illustrate our thesis, we provide examples of legal rules and doctrines that may be best understood as a response to the moral hazard problem resulting from state protection of private property.
Keywords: Property, Property rights, Private property, Enforcement, Moral hazard, Self-help, Preventive measures, Investment incentives
JEL Classification: H10, H40, K11, K42, P14, P48
Suggested Citation: Suggested Citation
Bell, Abraham and Parchomovsky, Gideon, The Case for Imperfect Enforcement of Property Rights (January 23, 2012). University of Pennsylvania Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1990288 or http://dx.doi.org/10.2139/ssrn.1990288