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Cover of: The Property-Contract Balance
Giuseppe Dari-Mattiacci, Carmine Guerriero, Zhenxing Huang

The Property-Contract Balance

Section: Articles
Volume 172 (2016) / Issue 1, pp. 40-64 (25)
Published 09.07.2018
DOI 10.1628/093245616X14500948553956
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  • 10.1628/093245616X14500948553956
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Summary
We identify a key trade-off between protecting property rights and enhancing reliance on contracts. For instance, when a dishonest intermediary transfers a good to an innocent buyer without the owner's consent, should the buyer or the owner retain the good? We show that the optimal rule maximizes the agents' valuation of the good rather than their incentives to protect property and inquire about title. Furthermore, enhancing reliance on contracts is more appealing in countries where fewer intermediaries are honest and law enforcement is more efficient. This is consistent with novel comparative-law data on the acquisition of ownership over movables.