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The Psychology of Property Law$
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Stephanie M. Stern and Daphna Lewinsohn-Zamir

Print publication date: 2020

Print ISBN-13: 9781479835683

Published to NYU Press Scholarship Online: September 2020

DOI: 10.18574/nyu/9781479835683.001.0001

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Property Rules versus Liability Rules

Property Rules versus Liability Rules

(p.191) 7 Property Rules versus Liability Rules
The Psychology of Property Law

Stephanie M. Stern

Daphna Lewinsohn-Zamir

NYU Press

This chapter discusses one of the most fundamental issues that every legal system must address: the form of protection that should be given to legal entitlements, including property rights. The chapter summarizes the debate regarding the choice between property rules and liability rules, and its underlying assumptions. It then shows how behavioral studies offer important considerations that should influence the legal discussion. Generally speaking, psychological studies invite more optimism about people's ability to reach mutual agreement under property rules and suggest that miscalculations of damages under liability rules may be a graver danger than presently realized. These studies caution us against increasing the use of liability rules and lend additional support to the use of property rules when transaction costs are low.

Keywords:   property rules, liability rules, ultimatum game, dictator game, self-serving bias, endowment effect, undercompensation

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