legal essay

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Endogenous Property Rights and a Culture of Self-Reliance.

Carmine Guerriero (University of Bologna)

Radzyner Law School, Herzliya. 07/09/2018.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Role of the Intermediation.

Main Contributions: Theory . . .

— How property rights protection is balanced against the enhancement of the reliance on contract? Differently from Guerriero (2016, 2017), we focus on cases in which an intermediary is needed—i.e., 30% of 2011 US GDP, studying in particular the instance of stolen movables.

— More generally, we devise a theory of how societies, heterogeneous in their endowment of long run moral and enforcement capacity, balance the use of coercion against the one of markets for transferring property rights on movables (see for the formal proofs Dari-Mattiacci et al., [2016]).

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Role of the Intermediation.

Main Contributions: Theory . . .

— How property rights protection is balanced against the enhancement of the reliance on contract? Differently from Guerriero (2016, 2017), we focus on cases in which an intermediary is needed—i.e., 30% of 2011 US GDP, studying in particular the instance of stolen movables.

— More generally, we devise a theory of how societies, heterogeneous in their endowment of long run moral and enforcement capacity, balance the use of coercion against the one of markets for transferring property rights on movables (see for the formal proofs Dari-Mattiacci et al., [2016]).

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Role of the Intermediation.

Evidence.

— We devise a unique dataset on the rules on the adverse possession of mobables prevailing in 126 jurisdictions between 1981 and 2011, available at http://www.sciencedirect.com/science/article/pii/S2352340917300811

We observe a wide legal variation ranging from full-original owner protection—e.g., U.S.—to full-potential buyer protection, e.g., Italy.

— Consistent with our model and the idea that buyers tend to have higher valuations, original owners are protected the most in jurisdictions endowed with the strongest culture of morality and/or the weakest law enforcement, and both features are more relevant in more competitive trade environments.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Role of the Intermediation.

Evidence.

— We devise a unique dataset on the rules on the adverse possession of mobables prevailing in 126 jurisdictions between 1981 and 2011, available at http://www.sciencedirect.com/science/article/pii/S2352340917300811

We observe a wide legal variation ranging from full-original owner protection—e.g., U.S.—to full-potential buyer protection, e.g., Italy.

— Consistent with our model and the idea that buyers tend to have higher valuations, original owners are protected the most in jurisdictions endowed with the strongest culture of morality and/or the weakest law enforcement, and both features are more relevant in more competitive trade environments.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Role of the Intermediation.

Dari-Mattiacci and Guerriero (2015), i.e., Law and Culture:

A Theory of Comparative Variation in Bona Fide Purchase Rules.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Is There Comparative Legal Variation?

— We sent the same questionnaire to 148 teams of experts in 126 jurisdictions, i.e., private law professor in leading universities and practitioners in prominent law firms, who had participated in comparative law projects. They are the bulk of http://nomography.wustl.edu/

— The experts were asked to provide a detailed answer to the following main question and a number of follow-up questions: At what conditions does a good faith buyer acquire ownership of a stolen good? Please, indicate the legal sources, either law or judicial decisions, for you answer and summarize the history of possible reforms over the last 30 years, i.e., 1981-2011.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Is There Comparative Legal Variation?

— We sent the same questionnaire to 148 teams of experts in 126 jurisdictions, i.e., private law professor in leading universities and practitioners in prominent law firms, who had participated in comparative law projects. They are the bulk of http://nomography.wustl.edu/

— The experts were asked to provide a detailed answer to the following main question and a number of follow-up questions: At what conditions does a good faith buyer acquire ownership of a stolen good? Please, indicate the legal sources, either law or judicial decisions, for you answer and summarize the history of possible reforms over the last 30 years, i.e., 1981-2011.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Adverse Possession.

Adverse Possession: years needed for adverse possession by a good faith possessor of a movable good, where pure owner protection = 30. USA = 30; Germany = 10; Russia = 8; England = 6; Turkey = 5; France = 3; Italy = 0.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Property Private.

Property Private: years after which a good faith buyer definitively acquires ownership of a stolen movable good purchased within a private sale.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Property Market

Property Market: years after which a good faith buyer definitively acquires ownership of a stolen movable good purchased within a public market.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Property Professional

Property Professional: years after which a good faith buyer acquires ownership of a stolen movable good purchased from a professional seller.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Property Auction

Property Auction: years after which a good faith buyer definitively acquires ownership of a stolen movable good purchased within an auction sale.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Good Faith

Good Faith: dummy equal to 0 when good faith is presumed.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Culture

Culture: first principal component extracted from norms of trust and respect.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Enforcement

Enforcement: first principal component extracted from the numbers of police personnel and professional judges.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Adverse Possession, Culture, Enforcement

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

The Sample.

Property Private, Culture, Enforcement

Causality?

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Testable Predictions: Statement and . . .

Proposition: The probability that society selects a stronger protection of the buyer—i.e., buyer protection instead of good-faith or owner protection:

1. falls with the share of moral intermediaries and rises with the quality of law enforcement, when the potential buyers have high valuation;

2. rises with the share of moral intermediaries and falls with the quality of law enforcement, when the potential buyers have low valuation;

3. increases with the scope of trade;

4. responds more when the scope of trade is larger.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Testable Predictions: Statement and . . .

Proposition: The probability that society selects a stronger protection of the buyer—i.e., buyer protection instead of good-faith or owner protection:

1. falls with the share of moral intermediaries and rises with the quality of law enforcement, when the potential buyers have high valuation;

2. rises with the share of moral intermediaries and falls with the quality of law enforcement, when the potential buyers have low valuation;

3. increases with the scope of trade;

4. responds more when the scope of trade is larger.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Testable Predictions: Statement and . . .

Proposition: The probability that society selects a stronger protection of the buyer—i.e., buyer protection instead of good-faith or owner protection:

1. falls with the share of moral intermediaries and rises with the quality of law enforcement, when the potential buyers have high valuation;

2. rises with the share of moral intermediaries and falls with the quality of law enforcement, when the potential buyers have low valuation;

3. increases with the scope of trade;

4. responds more when the scope of trade is larger.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Testable Predictions: Statement and . . .

Proposition: The probability that society selects a stronger protection of the buyer—i.e., buyer protection instead of good-faith or owner protection:

1. falls with the share of moral intermediaries and rises with the quality of law enforcement, when the potential buyers have high valuation;

2. rises with the share of moral intermediaries and falls with the quality of law enforcement, when the potential buyers have low valuation;

3. increases with the scope of trade;

4. responds more when the scope of trade is larger.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Intuitions.

← The rule that most often allocates the good to highest valuation agents always prevails ← Insecure property rights can enhance welfare when tackling value misallocation (Calabresi and Melamed, 1972).

We focus on high-valuation buyers since the intermediaries’ objective is to match original owners with them and the gains are the highest for V = V .

General Model

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Intuitions.

← The rule that most often allocates the good to highest valuation agents always prevails ← Insecure property rights can enhance welfare when tackling value misallocation (Calabresi and Melamed, 1972).

We focus on high-valuation buyers since the intermediaries’ objective is to match original owners with them and the gains are the highest for V = V .

General Model

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

A Sketch.

Intuitions.

← The rule that most often allocates the good to highest valuation agents always prevails ← Insecure property rights can enhance welfare when tackling value misallocation (Calabresi and Melamed, 1972).

We focus on high-valuation buyers since the intermediaries’ objective is to match original owners with them and the gains are the highest for V = V .

General Model

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Main Achievements.

Conclusion: Explaining Comparative Variation . . .

— We further “unbundle” institutions by overtaking the “property vs. contracting” institutions comparison (Acemoglu and Johnson, 2005);

— By endogenizing prices, we stress “misallocation"-minimization over “incentives"-maximization (Schwartz and Scott, 2011).

— We document that legal variation is rational (Levmore, 1987).

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Main Achievements.

Conclusion: Explaining Comparative Variation . . .

— We further “unbundle” institutions by overtaking the “property vs. contracting” institutions comparison (Acemoglu and Johnson, 2005);

— By endogenizing prices, we stress “misallocation"-minimization over “incentives"-maximization (Schwartz and Scott, 2011).

— We document that legal variation is rational (Levmore, 1987).

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Main Achievements.

Conclusion: Explaining Comparative Variation . . .

— We further “unbundle” institutions by overtaking the “property vs. contracting” institutions comparison (Acemoglu and Johnson, 2005);

— By endogenizing prices, we stress “misallocation"-minimization over “incentives"-maximization (Schwartz and Scott, 2011).

— We document that legal variation is rational (Levmore, 1987).

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Main Achievements.

Informing Legal Harmonization.

— We provide predictions relevant for several fields of law, such as financial regulation, and in general the process of international legal harmonization.

— If comparative variation is random, harmonization is beneficial, since it curbs legal uncertainty. If instead comparative variation is an optimal response to long-lasting differences across jurisdictions, as in this case, then harmonization induces unqualified elimination of legal differences.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Main Achievements.

Informing Legal Harmonization.

— We provide predictions relevant for several fields of law, such as financial regulation, and in general the process of international legal harmonization.

— If comparative variation is random, harmonization is beneficial, since it curbs legal uncertainty. If instead comparative variation is an optimal response to long-lasting differences across jurisdictions, as in this case, then harmonization induces unqualified elimination of legal differences.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Exploiting Exogenous Variation: . . .

Country Denmark France Italy Turkey General term of adverse possession in good faith (years) Never 3 0 5 General term of adverse possession in bad faith (years) Never Never 20 Never Definition of good faith Objective Subjective Subjective Objective Presumption of good faith No Yes Yes Yes General term of prescription of the owner’s remedy (years) Never 3 Never 5 Owner protection in private sales (years) Never 3 0 5 Owner protection in public markets, with professional sellers and in auctions (years) Never 3 0 5 Pro-buyer liability rule No Purchase price No Market price Enforcement Weak Strong Strong Weak Morality High High Low Low Drop the first person pronoun No No Yes Yes Different second person pronouns No Yes Yes No

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

The Role of Grammatical Rules.

— Pronoun-Drop equals one when the language spoken by the plurality group in the jurisdiction does not forbid dropping the first-person pronoun → emphasis on the individual relative to her social context and thus larger mutual respect!!!

— Pronoun-Difference equals one when the language spoken by the plurality group in the jurisdiction allows a speaker to choose among several second-person pronouns according to the social distance between him/her and another speaker → emphasis on a centralized system of control of deviant behaviors!!!

— Self-Reliance takes a value 1 if both features are present, 2 if either of the two is present, and 3 if none of them is present.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

The Role of Grammatical Rules.

— Pronoun-Drop equals one when the language spoken by the plurality group in the jurisdiction does not forbid dropping the first-person pronoun → emphasis on the individual relative to her social context and thus larger mutual respect!!!

— Pronoun-Difference equals one when the language spoken by the plurality group in the jurisdiction allows a speaker to choose among several second-person pronouns according to the social distance between him/her and another speaker → emphasis on a centralized system of control of deviant behaviors!!!

— Self-Reliance takes a value 1 if both features are present, 2 if either of the two is present, and 3 if none of them is present.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

The Role of Grammatical Rules.

— Pronoun-Drop equals one when the language spoken by the plurality group in the jurisdiction does not forbid dropping the first-person pronoun → emphasis on the individual relative to her social context and thus larger mutual respect!!!

— Pronoun-Difference equals one when the language spoken by the plurality group in the jurisdiction allows a speaker to choose among several second-person pronouns according to the social distance between him/her and another speaker → emphasis on a centralized system of control of deviant behaviors!!!

— Self-Reliance takes a value 1 if both features are present, 2 if either of the two is present, and 3 if none of them is present.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Self-Reliance

Self-Reliance: 3 if neither pronoun drop nor difference, 1 if both, and 2 o/w.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Other Robustness Checks.

The basic 2SLS estimates are robust to controlling for

— pro-owner attitude, i.e., population share of Catholics and Muslims; legal tradition in 2000 (Guerriero, 2016).

— colonizers’ strategy, i.e., pathogen load and identity of colonizers.

— enforcement capacity, i.e., inclusiveness of political institutions, corruption level, and share of years elapsed between 1816—or the independence year—and 1975 during which the jurisdiction was involved in an external military conflict.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Other Robustness Checks.

The basic 2SLS estimates are robust to controlling for

— pro-owner attitude, i.e., population share of Catholics and Muslims; legal tradition in 2000 (Guerriero, 2016).

— colonizers’ strategy, i.e., pathogen load and identity of colonizers.

— enforcement capacity, i.e., inclusiveness of political institutions, corruption level, and share of years elapsed between 1816—or the independence year—and 1975 during which the jurisdiction was involved in an external military conflict.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Other Robustness Checks.

The basic 2SLS estimates are robust to controlling for

— pro-owner attitude, i.e., population share of Catholics and Muslims; legal tradition in 2000 (Guerriero, 2016).

— colonizers’ strategy, i.e., pathogen load and identity of colonizers.

— enforcement capacity, i.e., inclusiveness of political institutions, corruption level, and share of years elapsed between 1816—or the independence year—and 1975 during which the jurisdiction was involved in an external military conflict.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 1.

Property Private and Self-Reliance in 22 Jurisdictions.

Before 1815, these countries were under the seizure of a foreign power and so picked rights when the language had crystallized.

Return 1

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Theory: Preliminaries, . . .

Consider a mass 1 of intermediaries and two slightly larger groups of original owners of an homogeneous good and potential buyers.

→ Intermediaries have full bargaining power.

Owners value the good at U, buyers at the known valuation V . We consider either the V ≡ U − ∆ or the V ≡ U + ∆ case.

Transfers require intermediaries, who value the good at 0 and can either buy or steal at most one good and meet at most one buyer. Moreover, they can either be with probability 1 −µ “moral,” and thus bear a cost of stealing equal to m > U (A1) and so sufficient to discourage them, or be “immoral,” and thus insensitive to guilt. The intermediaries’ type is private information.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Theory: Preliminaries, . . .

Consider a mass 1 of intermediaries and two slightly larger groups of original owners of an homogeneous good and potential buyers.

→ Intermediaries have full bargaining power.

Owners value the good at U, buyers at the known valuation V . We consider either the V ≡ U − ∆ or the V ≡ U + ∆ case.

Transfers require intermediaries, who value the good at 0 and can either buy or steal at most one good and meet at most one buyer. Moreover, they can either be with probability 1 −µ “moral,” and thus bear a cost of stealing equal to m > U (A1) and so sufficient to discourage them, or be “immoral,” and thus insensitive to guilt. The intermediaries’ type is private information.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Theory: Preliminaries, . . .

Consider a mass 1 of intermediaries and two slightly larger groups of original owners of an homogeneous good and potential buyers.

→ Intermediaries have full bargaining power.

Owners value the good at U, buyers at the known valuation V . We consider either the V ≡ U − ∆ or the V ≡ U + ∆ case.

Transfers require intermediaries, who value the good at 0 and can either buy or steal at most one good and meet at most one buyer. Moreover, they can either be with probability 1 −µ “moral,” and thus bear a cost of stealing equal to m > U (A1) and so sufficient to discourage them, or be “immoral,” and thus insensitive to guilt. The intermediaries’ type is private information.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

The Timing, . . .

t0: Society selects one among O, GF, B on the basis of the sum of the expected social welfare and a mean zero preference shocks.

t1: Each intermediary first decides whether to steal, buy, or exit the market, and then possibly announces a selling price p to the original owners.

t2: Buyers are randomly matched to intermediaries, get a costless signal informative only if the good is stolen and with odds s, and possibly buy.

t3: With probability q < min {

s, U ∆+U

} (A2, A3), the legal system observes

the title of each good and enforces the law under the prevailing regime.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

The Timing, . . .

t0: Society selects one among O, GF, B on the basis of the sum of the expected social welfare and a mean zero preference shocks.

t1: Each intermediary first decides whether to steal, buy, or exit the market, and then possibly announces a selling price p to the original owners.

t2: Buyers are randomly matched to intermediaries, get a costless signal informative only if the good is stolen and with odds s, and possibly buy.

t3: With probability q < min {

s, U ∆+U

} (A2, A3), the legal system observes

the title of each good and enforces the law under the prevailing regime.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

The Timing, . . .

t0: Society selects one among O, GF, B on the basis of the sum of the expected social welfare and a mean zero preference shocks.

t1: Each intermediary first decides whether to steal, buy, or exit the market, and then possibly announces a selling price p to the original owners.

t2: Buyers are randomly matched to intermediaries, get a costless signal informative only if the good is stolen and with odds s, and possibly buy.

t3: With probability q < min {

s, U ∆+U

} (A2, A3), the legal system observes

the title of each good and enforces the law under the prevailing regime.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

The Timing, . . .

t0: Society selects one among O, GF, B on the basis of the sum of the expected social welfare and a mean zero preference shocks.

t1: Each intermediary first decides whether to steal, buy, or exit the market, and then possibly announces a selling price p to the original owners.

t2: Buyers are randomly matched to intermediaries, get a costless signal informative only if the good is stolen and with odds s, and possibly buy.

t3: With probability q < min {

s, U ∆+U

} (A2, A3), the legal system observes

the title of each good and enforces the law under the prevailing regime.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Property Rights Regime.

— Under owner protection, a good recognized as stolen is given back to its original owner. This happens with probability q.

— Under good faith buyer protection, only the buyers observing an uninformative signal retain a good recognized as stolen, which happens with odds (1 − s) q. This assumption stresses the difference between the buyer’s actual knowledge and the legal notion of good faith.

— Under buyer protection, everybody keeps goods identified as stolen.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Property Rights Regime.

— Under owner protection, a good recognized as stolen is given back to its original owner. This happens with probability q.

— Under good faith buyer protection, only the buyers observing an uninformative signal retain a good recognized as stolen, which happens with odds (1 − s) q. This assumption stresses the difference between the buyer’s actual knowledge and the legal notion of good faith.

— Under buyer protection, everybody keeps goods identified as stolen.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Property Rights Regime.

— Under owner protection, a good recognized as stolen is given back to its original owner. This happens with probability q.

— Under good faith buyer protection, only the buyers observing an uninformative signal retain a good recognized as stolen, which happens with odds (1 − s) q. This assumption stresses the difference between the buyer’s actual knowledge and the legal notion of good faith.

— Under buyer protection, everybody keeps goods identified as stolen.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Equilibrium: Regularities and . . .

1. Because of competition among owners, intermediaries buy at U;

2. Being matching unique, prices must leave buyers indifferent;

3. A1 → moral intermediaries exit (buy at ph ≡ V ) for V = V (V );

4. A3 → (1 − q) V > V − U → for V = V immoral intermediaries always prefer stealing, announcing pl ≡ (1 − q)V , and thus selling for sure to buying, announcing ph, and possibly selling.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Equilibrium: Regularities and . . .

1. Because of competition among owners, intermediaries buy at U;

2. Being matching unique, prices must leave buyers indifferent;

3. A1 → moral intermediaries exit (buy at ph ≡ V ) for V = V (V );

4. A3 → (1 − q) V > V − U → for V = V immoral intermediaries always prefer stealing, announcing pl ≡ (1 − q)V , and thus selling for sure to buying, announcing ph, and possibly selling.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Equilibrium: Regularities and . . .

1. Because of competition among owners, intermediaries buy at U;

2. Being matching unique, prices must leave buyers indifferent;

3. A1 → moral intermediaries exit (buy at ph ≡ V ) for V = V (V );

4. A3 → (1 − q) V > V − U → for V = V immoral intermediaries always prefer stealing, announcing pl ≡ (1 − q)V , and thus selling for sure to buying, announcing ph, and possibly selling.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Equilibrium: Regularities and . . .

1. Because of competition among owners, intermediaries buy at U;

2. Being matching unique, prices must leave buyers indifferent;

3. A1 → moral intermediaries exit (buy at ph ≡ V ) for V = V (V );

4. A3 → (1 − q) V > V − U → for V = V immoral intermediaries always prefer stealing, announcing pl ≡ (1 − q)V , and thus selling for sure to buying, announcing ph, and possibly selling.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Characterization for V = V and . . .

L1: Under A1-A3, for V = V moral intermediaries buy at U and immoral ones steal. Under both O and GF, the only equilibrium is separating, i.e., legitimate goods are sold at ph and stolen ones at pl. Under B, the only equilibrium is pooling and the unique price ph. The expected trade-related social welfare is the highest (lowest) under B (O).

← Intuition: since culture assures that most transactions are legal, condoning some non-consensual transfers is less useful. Similarly, a large number of goods returned back because of strong enforcement will be counterbalanced by weaker owner protection.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

Characterization for V = V and . . .

L1: Under A1-A3, for V = V moral intermediaries buy at U and immoral ones steal. Under both O and GF, the only equilibrium is separating, i.e., legitimate goods are sold at ph and stolen ones at pl. Under B, the only equilibrium is pooling and the unique price ph. The expected trade-related social welfare is the highest (lowest) under B (O).

← Intuition: since culture assures that most transactions are legal, condoning some non-consensual transfers is less useful. Similarly, a large number of goods returned back because of strong enforcement will be counterbalanced by weaker owner protection.

Class 3: The Law & Economics of Property Rights.

Preliminaries. D&G (2015): Evidence & Theory. Conclusions. Appendices.

Appendix 2.

and V = V .

L2: Under A1-A3, for V = V only immoral intermediaries stay in the market. They steal, and they sell at ph ≡ V under B and pl ≡ (1 − q) V o/w. The expected trade-related social welfare is highest (lowest) under O (B).

Return 2

Class 3: The Law & Economics of Property Rights.