Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162224
Authors: 
Bar-Gill, Oren
Engel, Christoph
Year of Publication: 
2017
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2017/5
Abstract: 
In a full-information, zero transactions costs world, the degree of protection afforded to an entitlement does not affect the likelihood of efficient trade. In reality, imperfect information is often inevitable. Specifically, a party will usually have incomplete information about fairness norms held by the other party - fairness norms that affect the other party's willingness to pay (WTP) or willingness to accept (WTA). Importantly, these fairness norms may depend on how strongly the entitlement is protected. We experimentally test the effect of the degree of protection on the parties' WTP and WTA and on the likelihood of efficient trade by varying the legal remedy for infringing upon the owner's entitlement. We show that our participants can be divided into three groups corresponding to three different fairness norms: negative types whose WTP and WTA are decreasing in the strength of the legal remedy; positive types whose WTP and WTA are increasing in the strength of the legal remedy; and flat types whose WTP and WTA do not depend on the strength of the legal remedy. We find that type is role-dependent, such that a higher WTP and a lower WTA - the combination most conducive to efficient trade - is obtained with a weaker legal remedy.
Subjects: 
property rule
liability rule
damages
compensation
coase theorem
bargaining
fairness
equality
desert
entitlement
taking
JEL: 
C78
C91
D12
D63
K11
K12
Document Type: 
Working Paper

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