64 Pages Posted: 26 Feb 2013 Last revised: 7 Jul 2015
Date Written: 2013
Endowment theory holds the mere ownership of a thing causes people to assign greater value to it than they otherwise would. The theory entered legal scholarship in the early 1990s and quickly eclipsed other accounts of how ownership affects valuation. Today, appeals to a generic “endowment effect” can be found throughout the legal literature. More recent experimental results, however, suggest that the empirical evidence for endowment theory is weak at best. When the procedures used in laboratory experiments are altered to rule out alternative explanations, the “endowment effect” disappears. This and other recent evidence suggest that mere ownership does not affect willingness to trade or exchange. Many experimental economists no longer ascribe to endowment theory. Legal scholars, however, continue to rely on endowment theory to predict legal entitlements’ probable effects on expressed valuations. That reliance is no longer warranted. Endowment theory’s influence in legal scholarship provides important lessons about how legal scholars and policymakers should, and should not, use results from experimental economics.
Keywords: endowment effect, endowment theory, prospect theory, exchange asymmetries, ownership, behavioral economics
JEL Classification: K00, K10, K19
Suggested Citation: Suggested Citation
Klass, Gregory and Zeiler, Kathryn, Against Endowment Theory: Experimental Economics and Legal Scholarship (2013). UCLA Law Review, Vol. 61, pp. 2-64, 2013; Georgetown Public Law Research Paper No. 13-013; Georgetown Law and Economics Research Paper No. 13-005. Available at SSRN: https://ssrn.com/abstract=2224105 or http://dx.doi.org/10.2139/ssrn.2224105
By Daniel Crane