How to Protect Entitlements: An Experiment

42 Pages Posted: 10 Apr 2017 Last revised: 13 Apr 2018

Oren Bar-Gill

Harvard Law School

Christoph Engel

Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students; Universität Osnabrück - Faculty of Law

Date Written: April 1, 2018

Abstract

In a full-information, zero transactions costs world, the degree of protection afforded to an entitlement does not affect the likelihood of efficient trade. In reality, imperfect information is often inevitable. Specifically, a party will usually have incomplete information about fairness norms held by the other party – fairness norms that affect the other party’s willingness to pay (WTP) or willingness to accept (WTA). Importantly, these fairness norms may depend on how strongly the entitlement is protected. We experimentally test the effect of the degree of protection on the parties’ WTP and WTA and on the likelihood of efficient trade by varying the legal remedy for infringing upon the owner’s entitlement. We show that our participants can be divided into three groups corresponding to three different fairness norms: negative types whose WTP and WTA are decreasing in the strength of the legal remedy; positive types whose WTP and WTA are increasing in the strength of the legal remedy; and flat types whose WTP and WTA do not depend on the strength of the legal remedy. We find that type is role-dependent, such that a higher WTP and a lower WTA – the combination most conducive to efficient trade – is obtained with a weaker legal remedy.

Keywords: property rule, liability rule, damages, compensation, Coase theorem, bargaining, fairness, equality, desert, entitlement, taking

JEL Classification: C78, C91, D12, D63, K11, K12

Suggested Citation

Bar-Gill, Oren and Engel, Christoph, How to Protect Entitlements: An Experiment (April 1, 2018). MPI Collective Goods Preprint, No. 2017/05. Available at SSRN: https://ssrn.com/abstract=2949851 or http://dx.doi.org/10.2139/ssrn.2949851

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Christoph Engel

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+049 228 914160 (Phone)
+049 228 9141655 (Fax)

HOME PAGE: http://www.coll.mpg.de/engel.html

University of Bonn - Faculty of Law & Economics

Postfach 2220
D-53012 Bonn
Germany

Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students ( email )

Burgemeester Oudlaan 50
PO Box 1738
Rotterdam
Netherlands

Universität Osnabrück - Faculty of Law

Osnabruck, D-49069
Germany

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