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Property is Dummy Proof: An Experiment

Author

Listed:
  • Oren Bar-Gill

    (Harvard Law School)

  • Christoph Engel

    (Max Planck Institute for Research on Collective Goods)

Abstract
Law is for humans. Humans suffer from cognitive limitations. Legal institutions can help humans by making these limitations irrelevant. This experiment shows that strong property rights serve this function. In theory, efficient outcomes obtain even without strong property rights. In a hypothetical world where cognitive ability is perfect, individuals would not engage in wasteful taking wars. A party would not take another’s good, if she expects that the good will ultimately be taken back. By contrast, the large majority of experimental subjects takes a token good when interacting with a computer they know to maximize profit, and that has a symmetric ability to take the good back. Experience mitigates the inefficiency, but does not eliminate it; and in the real world relevant experience is often lacking. We show that cognitive limitations prevent weak property rights – imperfectly enforced property rules and liability rules with low damages – from securing efficient outcomes. Strong property rights should be preferred, because they are dummy proof.

Suggested Citation

  • Oren Bar-Gill & Christoph Engel, 2020. "Property is Dummy Proof: An Experiment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_02, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2020_02
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    File URL: http://www.coll.mpg.de/pdf_dat/2020_02online.pdf
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    Cited by:

    1. Christoph Engel, 2021. "Wettbewerb und Gemeinwohl," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2021_08, Max Planck Institute for Research on Collective Goods.

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    More about this item

    Keywords

    Property; Liability; Cost of Appropriation; Cognitive Limitations; Sophistication; Descriptive and Normative Beliefs;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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