247 Jurisdictions in the World Get the Good-Faith Purchase Problem Wrong: A New Economic Framework

Abstract

Scholars have argued that reasonable persons can disagree on what the most sensible good-faith purchase doctrine is. Indeed, using hand-coded data on this doctrine in 247 jurisdictions, this article finds that this doctrine has hardly converged —— at least 23 different variants of this doctrine, from “no good faith required” to “good faith is all the purchaser needs,” are implemented. This article, however, argues against an agnostic position about which rule maximizes allocative and productive efficiency jointly. More specifically, the market overt rule is closest to productive efficiency, as original owners, merchant dealers, and consumers have incentives to spend close to optimal costs on verification and prevention. When both an original owner and a consumer are non-negligent, an internal auction between them, both assigned 50% ownership by the court, can tease out who values the resource more.

Keywords: market overt rule, stolen goods, embezzled chattels, allocative efficiency, productive efficiency, mechanism design, Myerson and Satterwaite Impossibility Theorem

JEL Classification: K11