On the Choice Between Property Rules and Liability Rules
When parties can bargain with each other in an externality situation, it is frequently argued that liability rules are preferable to property rules. The case for liability rules is thought to be strongest when the parties behave strategically, when the collective authority responsible for maximizing social welfare has perfect information, and when lump-sum transfers are not available. It is shown here that liability rules are not generally preferable to property rules in these circumstances because of their limited ability to redistribute income between the parties.
|Date of creation:||Oct 1978|
|Date of revision:|
|Publication status:||published as Polinsky, A. Mitchell. "On the Choice Between Property Rules and Liability Rules." Economic Inquiry Vol. 18, No. 2, (April 1980), pp. 233-246.|
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- Frech, H E, III, 1979. "The Extended Coase Theorem and Long Run Equilibrium: The Nonequivalence of Liability Rules and Property Rights," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 254-68, April.
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