Exchange Efficiency with Weak Ownership Rights

American Economic Journal: Microeconomics, Forthcoming

John M. Olin Center for Law, Economics, and Business, Discussion Paper No. 858

63 Pages Posted: 14 Mar 2016

Date Written: March 2016

Abstract

We show that efficient exchange obtains independently of the degree to which a legal system protects the rights of owners. We study a number of different legal rules, including property rules (strong protection), liability rules (any party can take the owner's asset but must pay a legally-determined compensation), and even rules that protect the owner's interests very weakly (liability rules with a very low compensation level). Efficiency is obtained as long as the degree of protection provided by law and by the bargaining protocol is not "too" inversely correlated with a party’s valuation of the asset.

Keywords: Property rights, Property rules, Liability rules, Exchange efficiency

JEL Classification: D47, D51, D61, K11

Suggested Citation

Bar-Gill, Oren and Persico, Nicola, Exchange Efficiency with Weak Ownership Rights (March 2016). American Economic Journal: Microeconomics, Forthcoming, John M. Olin Center for Law, Economics, and Business, Discussion Paper No. 858, Available at SSRN: https://ssrn.com/abstract=2743761

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Nicola Persico

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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