Document Type

Article

Publication Title

Yale Law Journal

Abstract

It is one thing to articulate a distinction; it is another to determine how it should be used. Although their work was pathbreaking in many ways, Calabresi and Melamed nonetheless failed to address systematically the challenge of deciding whether legal protection via a property or a liability rule should be conferred to holders of particular sorts of assets, or why. It is to that question that I shall address myself here. I shall lay out my cards clearly at the beginning. In a world in which transaction costs were zero, where all disputes could be costlessly resolved, the choice between liability rules and property rules would be of little or no importance-just another application of the ubiquitous Coase Theorem. On the one hand, the holdout danger from a property rule would be of no consequence because the two parties could exchange an infinite number of offers within an infinitesimal period of time; in essence, that is what a world of zero transaction costs would entail. On the other hand, a liability rule would have no serious downside either. Armed with our zero transaction costs assumption, any dispute on valuation could be resolved both accurately and instantly. In both cases, each asset would end up in the hands of the party who valued it most with no institutional drag, so that the choice of institutional arrangements would be of little or no consequence to the overall situation.

First Page

2091

DOI

https://doi.org/10.2307/797162

Volume

106

Publication Date

1997

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