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Augmenting the Value of Ownership by Protecting It Only Partially: The "Market-Overt" Rule Revisited

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  • Barak Medina
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    Abstract

    This article analyzes alternative rules for settling conflicts between right owner and a bona fide purchaser. The optimal rule, so it is argued, is the one which maximizes the expected value of the ownership right, given the risk of right violation. In order to maximize this value, one must seek to both mitigate the risk of right violation and augment a potential buyer's willingness to pay for the right. The analysis specifies the relevant parameters that define which rule is optimal in given circumstances, and proves that there are cases in which the value of the ownership right is maximized if the owner's right is only partially protected against innocent third parties. Two prevailing notions are challenged: first, that the "market-overt" rule necessarily induces buyers to invest fewer resources in prepurchase precautions, and second, that a buyer's willingness to pay is unaffected by the choice of the legal rule. Copyright 2003, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 19 (2003)
    Issue (Month): 2 (October)
    Pages: 343-372

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    Handle: RePEc:oup:jleorg:v:19:y:2003:i:2:p:343-372

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    Cited by:
    1. Benito Arruñada, 2012. "Property as an economic concept: reconciling legal and economic conceptions of property rights in a Coasean framework," International Review of Economics, Springer, vol. 59(2), pages 121-144, July.
    2. Benito Arruñada, 2014. "The titling role of possession," Economics Working Papers 1429, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Benito Arruñada, 2014. "The Titling Role of Possession," Working Papers 767, Barcelona Graduate School of Economics.

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