Liability rules have decided advantages over property rules in harnessing private information when bargaining is not possible. This “non-consensual” advantage of traditional liability rules can be found in Guido Calabresi and Douglas Melamed's Cathedral article itself and has been neatly formalized by Louis Kaplow and Steven Shavell. The harnessing result can be accomplished by a wide variety of allocatively equivalent (but distributionally different) single-chooser rules. This chapter shows that liability rules may induce both more contracting and more efficiency than property rules, and that liability rules possess an “information-forcing” effect that property rules do not. Ronald H. Coase showed that when transacting is costless, the choice between property and liability rules does not affect efficiency. Calabresi and Melamed followed by showing that when transaction costs make consensual transfer prohibitively expensive, liability rules (because of the harnessing effect) are likely to dominate property rules.
Keywords: bargaining; liability rules; property rules; private information; Guido Calabresi; Douglas Melamed; transaction costs; Ronald H. Coase; single-chooser rules
Chapter. 8920 words. Illustrated.
Subjects: Econometrics and Mathematical Economics
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