The Property-Contract Balance
41 Pages Posted: 17 Jun 2012 Last revised: 4 Nov 2015
Date Written: November 2, 2015
We identify a key trade-off between protecting property rights and enhancing reliance on contracts. For instance, when a dishonest intermediary transfers a good to an innocent buyer without the owner's consent, who between buyer and owner should retain the good? We show that the optimal institution maximizes the agents' valuation of the good rather than their incentives to protect property and inquire about title. Furthermore, enhancing reliance on contracts is comparatively more appealing when fewer intermediaries are honest and law enforcement is more efficient. This is consistent with novel data on the rules on the acquisition of ownership over movables.
Keywords: Property Rights, Contracts, Culture, Public Enforcement, Good Faith
JEL Classification: P14, L11, Z10, K11
Suggested Citation: Suggested Citation