Property Rules Versus Liability Rules

101 Pages Posted: 1 Feb 1998

See all articles by Louis Kaplow

Louis Kaplow

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

Steven Shavell

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

Multiple version iconThere are 2 versions of this paper

Date Written: 1996

Abstract

A fundamental legal problem is whether property rights should be protected by property rules or by liability rules. In this Article, we provide a systematic economic analysis of the choice between property and liability rules. We answer a basic question: why is it that liability rules are commonly used in the context of harmful externalities (such as pollution and automobile accidents), whereas property rules are generally employed to protect possessors of things against potential takers? In the course of our analysis, we demonstrate that many commonly held beliefs about property and liability rules are mistaken. Our analysis is also relevant to policy; for example, we show that in important contexts liability rules (and pollution taxes) are more efficient than property rules (including much regulation) even when damages must be set using only limited information about harm.

JEL Classification: D23, K11

Suggested Citation

Kaplow, Louis and Shavell, Steven, Property Rules Versus Liability Rules (1996). Available at SSRN: https://ssrn.com/abstract=56405 or http://dx.doi.org/10.2139/ssrn.56405

Louis Kaplow (Contact Author)

Harvard Law School ( email )

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HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=32&show=bibliography

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven Shavell

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3668 (Phone)
617-496-2256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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