ABSTRACT
This paper presents a novel argument for the law’s preference for property over liability rules that is based on their potential to reduce socially costly forms of retaliation by victims of takings. Property rules can better mitigate conflict and discourage costly punishment by victims, thereby increasing social welfare. This hypothesis is tested empirically in a laboratory experiment involving a task with a valued possession that can be taken by others. Results reveal that both property and liability rules reduce retaliation, but property rules are more effective, especially when the act of taking results in net gain for the taker, who then profits from the transgression. This suggests a hidden social cost in efficient takings under liability rules, providing evidence for the existing preference for property rules in legal systems. This paper contributes to the literature by revealing a significant, yet overlooked, advantage of property rules, rationalizing existing practice, and discussing the implications for the optimal choice of legal protection of entitlements.
Mittlaender, Sergio, Conflict and Property Law: The Hidden Costs of Takings and of Liability Rule Protection (March 4, 2024), Max Planck Institute for Social Law and Social Policy Research Paper No 2024-1.
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