Choice Theory And Its Applications Of Property Rules And Liability Rules

The event of Nail households and a series of conflicts about infringing private property right make us pay more attention to the problem of property right protection, so it is urgent and meaningful to develop the theory of property right protection. Property rules and liability rules are two basic rules of property right protection in law and economics view. Then should we take property rules or liability rules to protect the entitlement? That is the primary issue this article will explore.Calabresi and Melamed consider property rules are preferable when transaction costs are low, whereas liability rules are preferable when transaction costs are high. Later researchers loosened Calabresi and Melamed's hypotheses of perfect information and succeed transactions, developing the theory of property right protection. These researches indicate the trend that liability rules are more preferable.However, the conclusions hereinbefore are from the starting point of maximizing the social economic benefits, not considering the extent of protection given to the victims. In this article we allocate the entitlement to the victims and loose Calabresi and Melamed's hypotheses completely. Introducing the factor of the extend of property right protection, we choose between property rules and liability rules through comparing the social benefits of property rules to that of liability rules under different transaction costs. We conclude that (1)Property rules are preferable when transaction costs are low; (2)Property rules are the same as liability rules when transaction costs are high and there is no trade surplus; (3)Under intermediate transaction costs or high transaction costs with trade surplus, we propose an institutional arrangement which combining property rules with liability rules to promote transgressors to establish the reasonable value to compensate the victims, meanwhile victims accept the reasonable compensation from transgressors, not elevating the value blindly. This institutional arrangement realizes both the goal of protecting victims' right and the goal of economic efficiency. Subsequently this article analyses the problems of building demolition and environment pollution according to above analysis of ideas and basic conclusions, and proposes some correlative advices. All these deepen the theory of property right protection, that is, we should not incline to choose liability rules, like the existing literature revealed. On the contrary firstly we need to rank all the rights according to their importance to society, and then we make a choice according to the different effects of different rights on the choice.The first innovation of this article is loosening the hypotheses that Calabresi and Melamed implied in their research completely in the premise of allocating the entitlement to the victims. The second innovation is that introducing the factor of extend of property right protection, this article discusses the problem of choosing between property right protection rules further in order to realize the goal of economic efficiency and protecting victims' right at the same time.