A Critique of 'Tangibility' as the Basis for Property Rules

50 Pages Posted: 9 Mar 2001

See all articles by Ian Ayres

Ian Ayres

Yale University - Yale Law School; Yale University - Yale School of Management

Paul M. Goldbart

University of Illinois at Urbana-Champaign - Department of Physics

Date Written: March 2001


Kaplow and Shavell have recently claimed that property rules tend to protect tangible entitlements more efficiently than do liability rules. They argue that while liability rules tend to efficiently harness the defendant's private information when courts are imperfectly informed as to litigants' valuations of intangible entitlements, this harnessing effect does not apply to tangible entitlements for two reasons. First, they argue that the prospect of multiple takings (by others or even the original entitlement holder taking back the entitlement) makes it impossible to implement liability rules with regard to tangible entitlements. Second, they argue that liability rules cannot harness private information when the disputants' valuations are correlated and that valuations of tangibles tend to be more correlated than valuations of intangibles.

In this essay, we reject both the multiple-takings and the correlated-value claims. Our thesis is that, while both present real problems of implementation, the authors' own harnessing result can be extended to redeem the usefulness of liability rules even when values are correlated and even when there is the prospect of multiple takings. We will show that, even in the presence of these problems, enlightened courts can manipulate the damages that takers expect to pay so as to induce efficient takings.

The authors' numeric examples purporting to show the dominance of property rules systematically understate the potential efficiency of liability rules. Their examples compare the more efficient property rules to liability rules that use inefficient damages and systematically delegate allocative authority to the less efficient litigant. If the more appropriate comparisons are made, in all of Kaplow and Shavell's examples liability rules (which anticipate non-consensual takings) dominate property rules.

Suggested Citation

Ayres, Ian and Goldbart, Paul M., A Critique of 'Tangibility' as the Basis for Property Rules (March 2001). Yale Law & Economics Research Paper No. 251. Available at SSRN: https://ssrn.com/abstract=262185 or http://dx.doi.org/10.2139/ssrn.262185

Ian Ayres (Contact Author)

Yale University - Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)

Yale University - Yale School of Management

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Paul M. Goldbart

University of Illinois at Urbana-Champaign - Department of Physics ( email )

1110 West Green Street
Urbana, IL 61801-3080
United States
217/333-1195 (Phone)
217/333-9819 (Fax)

HOME PAGE: http://w3.physics.uiuc.edu/~goldbart/

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