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Property Rules vs. Liability Rules

Property Rules vs. Liability Rules. Interests of property owners may conflict E.g., cement factory and neighbors: Right to clean air right to pollute/manufacture. Who has the right? How should it be protected? Property rule Entitlement rule Inalienability rule. Property Rule.

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Property Rules vs. Liability Rules

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  1. Property Rules vs. Liability Rules • Interests of property owners may conflict • E.g., cement factory and neighbors: • Right to clean air • right to pollute/manufacture

  2. Who has the right? • How should it be protected? • Property rule • Entitlement rule • Inalienability rule

  3. Property Rule • Consent of owner required for transfer • Home or land ownership • Sale • Rental • Injunction against nuisance or trespass • Personal property – watch, car • Sale • Rental • Theft punishable by criminal law • Value of right decided in market transaction

  4. Liability Rule • Consent of owner not required for transfer • Eminent domain • Boomer v. Atlantic Cement • Damage to car in accident • Value determined by courts/legal system

  5. Inalienability Rule • No transfer permitted • Selling self into slavery • Selling organs • Selling babies

  6. What is the most efficient rule? • Property rule where cost of allocating rights by market transactions is low • Liability rule where cost of allocating rights by litigation is low

  7. Property rule is inefficient where transaction costs are high • Group of farmers own land and neighbors want to purchase it for a park Go to example

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