On the Choice between Property Rules and Liability Rules

14 Pages Posted: 19 Jun 2004 Last revised: 15 Oct 2022

See all articles by A. Mitchell Polinsky

A. Mitchell Polinsky

Stanford Law School; National Bureau of Economic Research (NBER)

Date Written: October 1978

Abstract

When parties can bargain with each other in an externality situation, it is frequently argued that liability rules are preferable to property rules. The case for liability rules is thought to be strongest when the parties behave strategically, when the collective authority responsible for maximizing social welfare has perfect information, and when lump-sum transfers are not available. It is shown here that liability rules are not generally preferable to property rules in these circumstances because of their limited ability to redistribute income between the parties.

Suggested Citation

Polinsky, A. Mitchell, On the Choice between Property Rules and Liability Rules (October 1978). NBER Working Paper No. w0286, Available at SSRN: https://ssrn.com/abstract=260476

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