Fluent Essays

1000 words.  this is the full insturction, Im lack of full information with this course since it is a small summer course, so I share what I know and how I know it: the file note for Law and Economics of Property Rights is class note by one of the studends, it is include the main ideas from class and instructions for the essay, 1. you need to choose one subject for the essay from the list of subjects in this file (file: note for Law and Economics of Property Rights). 2. choose a country that do it and face your arguments trhow this country (good choose is - israel, since it is the country of the course, just write israel does,,,,,. Government Takings - The State expropriates property / rights from A to grant them to a B who knows how to exploit them better.- do not need to realy research the real facts. 3. in your essay, please use the main ideas from class (as mantioned at note for Law and Economics of Property Rights) + use the relevant models (the models also mantioned in the file) when you choose the relevant models (by their names), please read about them at files: L1 or L2 or L3 (the reading of the files is not needed, only of the relvant models by searching their names. total of the essay is 1000 words. please read the essay structure at the file note for Law and Economics of Property Rights, in order to know what questions to answer at the essay.  thank you and good luck message from the teacher: Each student is expected to write an essay of no more or 1000 words on one among ten possible application of the course material and illustrated in the last class. The proposal should highlight how the course material can be used to analyze the specific legal case, and then illustrate the possible policy implications of the analysis Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Endogenous Property Rights Transaction Costs and Diversity. Carmine Guerriero (University of Bologna) EDLE PhD course, Bologna. 14/02/2018. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Property Rights: Misallocation Vs. Disincentives. – When transaction costs are large, initial legal entitlements shape allocative efficiency (Coase, 1960), and liability rules, and more generally, weak property rights might be optimal (Calabresi and Melamed, 1972). – Yet, the tendency of markets to be frictionless and the risk of predation would imply that rights should be complete when the political process is inclusive enough (Acemoglu and Johnson, 2005; Besley and Ghatak, 2010). – Nevertheless, the main challenges to private property come ubiquitously, and most surprisingly legally, from private parties whenever transaction costs are sizeable (Bouckaert and De Geest, 1995). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Property Rights: Misallocation Vs. Disincentives. – When transaction costs are large, initial legal entitlements shape allocative efficiency (Coase, 1960), and liability rules, and more generally, weak property rights might be optimal (Calabresi and Melamed, 1972). – Yet, the tendency of markets to be frictionless and the risk of predation would imply that rights should be complete when the political process is inclusive enough (Acemoglu and Johnson, 2005; Besley and Ghatak, 2010). – Nevertheless, the main challenges to private property come ubiquitously, and most surprisingly legally, from private parties whenever transaction costs are sizeable (Bouckaert and De Geest, 1995). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Property Rights: Misallocation Vs. Disincentives. – When transaction costs are large, initial legal entitlements shape allocative efficiency (Coase, 1960), and liability rules, and more generally, weak property rights might be optimal (Calabresi and Melamed, 1972). – Yet, the tendency of markets to be frictionless and the risk of predation would imply that rights should be complete when the political process is inclusive enough (Acemoglu and Johnson, 2005; Besley and Ghatak, 2010). – Nevertheless, the main challenges to private property come ubiquitously, and most surprisingly legally, from private parties whenever transaction costs are sizeable (Bouckaert and De Geest, 1995). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2017). – I formalize the Calabresi and Melamed’s (1972) intuition by devising a transaction cost-based theory of endogenous property rights for a production economy (Dari-Mattiacci and Guerriero, 2015; Guerriero, 2016; Bar-Gill and Persico, 2016; Segal and Whinston, 2016; AGZ, 2017) → 1. When potential buyers decide whether to buy or grab an asset, the original owners’ property rights fall with market frictions and failures. Market failures, in turn, rise with the dispersion in the original owners’ and potential buyers’ valuations (Dari-Mattiacci, 2012; BHK, 2014). 2. When the downstream firms decide whether to produce in-house through an old technology or to adopt a new more efficient one necessitating the upstream firms’ input, the property rights on the input fall with asset specificities. Asset specificities, in turn, rise with the odds of a more productive technology (AAZ, 2006). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2017). – I formalize the Calabresi and Melamed’s (1972) intuition by devising a transaction cost-based theory of endogenous property rights for a production economy (Dari-Mattiacci and Guerriero, 2015; Guerriero, 2016; Bar-Gill and Persico, 2016; Segal and Whinston, 2016; AGZ, 2017) → 1. When potential buyers decide whether to buy or grab an asset, the original owners’ property rights fall with market frictions and failures. Market failures, in turn, rise with the dispersion in the original owners’ and potential buyers’ valuations (Dari-Mattiacci, 2012; BHK, 2014). 2. When the downstream firms decide whether to produce in-house through an old technology or to adopt a new more efficient one necessitating the upstream firms’ input, the property rights on the input fall with asset specificities. Asset specificities, in turn, rise with the odds of a more productive technology (AAZ, 2006). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2017). – I formalize the Calabresi and Melamed’s (1972) intuition by devising a transaction cost-based theory of endogenous property rights for a production economy (Dari-Mattiacci and Guerriero, 2015; Guerriero, 2016; Bar-Gill and Persico, 2016; Segal and Whinston, 2016; AGZ, 2017) → 1. When potential buyers decide whether to buy or grab an asset, the original owners’ property rights fall with market frictions and failures. Market failures, in turn, rise with the dispersion in the original owners’ and potential buyers’ valuations (Dari-Mattiacci, 2012; BHK, 2014). 2. When the downstream firms decide whether to produce in-house through an old technology or to adopt a new more efficient one necessitating the upstream firms’ input, the property rights on the input fall with asset specificities. Asset specificities, in turn, rise with the odds of a more productive technology (AAZ, 2006). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Evidence. – For a panel of 135 countries spanning the 2006-2015 period, the protection of the original owner’s property is the weakest where market frictions and failures are the largest and the downstream firms’ property rights are the strongest where asset specificities are the largest, even ← conditional on country and year effects, income, democracy, non-produced output, conflicts, and human capital. ← when transaction costs are instrumented with the availability of latest technologies and the quality of math and science education. → Negative economic effect of weak property rights might be spurious. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Evidence. – For a panel of 135 countries spanning the 2006-2015 period, the protection of the original owner’s property is the weakest where market frictions and failures are the largest and the downstream firms’ property rights are the strongest where asset specificities are the largest, even ← conditional on country and year effects, income, democracy, non-produced output, conflicts, and human capital. ← when transaction costs are instrumented with the availability of latest technologies and the quality of math and science education. → Negative economic effect of weak property rights might be spurious. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Evidence. – For a panel of 135 countries spanning the 2006-2015 period, the protection of the original owner’s property is the weakest where market frictions and failures are the largest and the downstream firms’ property rights are the strongest where asset specificities are the largest, even ← conditional on country and year effects, income, democracy, non-produced output, conflicts, and human capital. ← when transaction costs are instrumented with the availability of latest technologies and the quality of math and science education. → Negative economic effect of weak property rights might be spurious. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Evidence. – For a panel of 135 countries spanning the 2006-2015 period, the protection of the original owner’s property is the weakest where market frictions and failures are the largest and the downstream firms’ property rights are the strongest where asset specificities are the largest, even ← conditional on country and year effects, income, democracy, non-produced output, conflicts, and human capital. ← when transaction costs are instrumented with the availability of latest technologies and the quality of math and science education. → Negative economic effect of weak property rights might be spurious. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Evidence. – For a panel of 135 countries spanning the 2006-2015 period, the protection of the original owner’s property is the weakest where market frictions and failures are the largest and the downstream firms’ property rights are the strongest where asset specificities are the largest, even ← conditional on country and year effects, income, democracy, non-produced output, conflicts, and human capital. ← when transaction costs are instrumented with the availability of latest technologies and the quality of math and science education. → Negative economic effect of weak property rights might be spurious. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2016). – In a—possibly production—economy populated by traders: → Original owners’ rights trade-off exclusion from trade of middle valuation potential buyers and expropriation by low-valuation ones. – Testable prediction: 1. the original owners’ rights increase with preference heterogeneity. – Data on a cross-section of 126 jurisdictions for which no relevant reform between 1981 and 2011 has been reported to Giuseppe Dari-Mattiacci and me by members of the Lex Mundi project and HG.org group, → confirm the model prediction across identification strategies. → show the inconsistency of predation-based proxies for property rights. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2016). – In a—possibly production—economy populated by traders: → Original owners’ rights trade-off exclusion from trade of middle valuation potential buyers and expropriation by low-valuation ones. – Testable prediction: 1. the original owners’ rights increase with preference heterogeneity. – Data on a cross-section of 126 jurisdictions for which no relevant reform between 1981 and 2011 has been reported to Giuseppe Dari-Mattiacci and me by members of the Lex Mundi project and HG.org group, → confirm the model prediction across identification strategies. → show the inconsistency of predation-based proxies for property rights. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2016). – In a—possibly production—economy populated by traders: → Original owners’ rights trade-off exclusion from trade of middle valuation potential buyers and expropriation by low-valuation ones. – Testable prediction: 1. the original owners’ rights increase with preference heterogeneity. – Data on a cross-section of 126 jurisdictions for which no relevant reform between 1981 and 2011 has been reported to Giuseppe Dari-Mattiacci and me by members of the Lex Mundi project and HG.org group, → confirm the model prediction across identification strategies. → show the inconsistency of predation-based proxies for property rights. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Guerriero (2016). – In a—possibly production—economy populated by traders: → Original owners’ rights trade-off exclusion from trade of middle valuation potential buyers and expropriation by low-valuation ones. – Testable prediction: 1. the original owners’ rights increase with preference heterogeneity. – Data on a cross-section of 126 jurisdictions for which no relevant reform between 1981 and 2011 has been reported to Giuseppe Dari-Mattiacci and me by members of the Lex Mundi project and HG.org group, → confirm the model prediction across identification strategies. → show the inconsistency of predation-based proxies for property rights. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Research Question. Remainder of the Class. – Guerriero (2017): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Either Exogenous (Financial Inefficiencies) or Endogenous Transaction Costs (Market Power, Lemons-type Distortions, Incomplete Contracting). Further Evidence: Are Correlations, in Fact, Causal? – Guerriero (2016): Preliminary Evidence: Stylized Facts. Theory: Property Rights and Preference Heterogeneity. Further Evidence: Are Correlations, in Fact, Causal? Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Guerriero (2017): Property Rights, Transaction Costs, and the Limits of the Market. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Anecdotal . . . – Frictions: the cost of eviction or the inability to provide a sufficient supply of housing because of regulatory requirements and speculative land-holding are the most recurring justifications to the tolerance towards the 40\% of private lands invaded in developing countries and the two billion squatters estimated around the world (Brueckner and Selod, 2009). – Frictions: exhaustion of intellectual property rights has been mainly implemented in high-transaction costs developing countries (Ghosh, 2014). – Frictions: Piazzesi et al. (2017) conclude that financial costs explain 14\% of the price gap between first and secondary housing market segments. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Anecdotal . . . – Frictions: the cost of eviction or the inability to provide a sufficient supply of housing because of regulatory requirements and speculative land-holding are the most recurring justifications to the tolerance towards the 40\% of private lands invaded in developing countries and the two billion squatters estimated around the world (Brueckner and Selod, 2009). – Frictions: exhaustion of intellectual property rights has been mainly implemented in high-transaction costs developing countries (Ghosh, 2014). – Frictions: Piazzesi et al. (2017) conclude that financial costs explain 14\% of the price gap between first and secondary housing market segments. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Anecdotal . . . – Frictions: the cost of eviction or the inability to provide a sufficient supply of housing because of regulatory requirements and speculative land-holding are the most recurring justifications to the tolerance towards the 40\% of private lands invaded in developing countries and the two billion squatters estimated around the world (Brueckner and Selod, 2009). – Frictions: exhaustion of intellectual property rights has been mainly implemented in high-transaction costs developing countries (Ghosh, 2014). – Frictions: Piazzesi et al. (2017) conclude that financial costs explain 14\% of the price gap between first and secondary housing market segments. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Evidence and . . . – Market power: Common access to the fishing harvest together with individual transferable quotas is more often observed in Nova Scotia and New Zealand where the fishermen’s market power is the strongest (Croutzet and Lasserre, 2017). Similarly, Article 31 of the TRIPS agreement allows the participants to impose compulsory licensing if the commercial terms for a voluntary license are unreasonable (Bond and Saggi, 2017). – Lemons-type distortions: Lee (2016) builds on 2008 data on BitTorrent file sharing activity and album sales to conclude that the former has no impact (a positive effect) on top(mid)-tier artists’ sales for which asymmetric information on perceived talent is the least (most) detrimental. – Incomplete contracting costs: stronger downstream firm’s intellectual property rights—i.e., trade secrecy and copyright instead of patents—are granted when asset specificities are severe (Burk and Mc-Donnel, 2007). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Evidence and . . . – Market power: Common access to the fishing harvest together with individual transferable quotas is more often observed in Nova Scotia and New Zealand where the fishermen’s market power is the strongest (Croutzet and Lasserre, 2017). Similarly, Article 31 of the TRIPS agreement allows the participants to impose compulsory licensing if the commercial terms for a voluntary license are unreasonable (Bond and Saggi, 2017). – Lemons-type distortions: Lee (2016) builds on 2008 data on BitTorrent file sharing activity and album sales to conclude that the former has no impact (a positive effect) on top(mid)-tier artists’ sales for which asymmetric information on perceived talent is the least (most) detrimental. – Incomplete contracting costs: stronger downstream firm’s intellectual property rights—i.e., trade secrecy and copyright instead of patents—are granted when asset specificities are severe (Burk and Mc-Donnel, 2007). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Evidence and . . . – Market power: Common access to the fishing harvest together with individual transferable quotas is more often observed in Nova Scotia and New Zealand where the fishermen’s market power is the strongest (Croutzet and Lasserre, 2017). Similarly, Article 31 of the TRIPS agreement allows the participants to impose compulsory licensing if the commercial terms for a voluntary license are unreasonable (Bond and Saggi, 2017). – Lemons-type distortions: Lee (2016) builds on 2008 data on BitTorrent file sharing activity and album sales to conclude that the former has no impact (a positive effect) on top(mid)-tier artists’ sales for which asymmetric information on perceived talent is the least (most) detrimental. – Incomplete contracting costs: stronger downstream firm’s intellectual property rights—i.e., trade secrecy and copyright instead of patents—are granted when asset specificities are severe (Burk and Mc-Donnel, 2007). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. . . . Empirical Evidence on . . . Executive Opinion Survey, World Economic Forum. 1-to-7 indexes: – Property-Rights: on generic property including financial assets. – Intellectual-Property: including anti-counterfeiting measures. – Shareholders-Protection: to what extent are the interests of minority shareholders protected by the legal system. Weakness of Property Rights The evidence is similar when property rights are measured by the available objective proxies for horizontal property rights, i.e., length of adverse possession of personal property and the DBP investor protection index. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. . . . Empirical Evidence on . . . Executive Opinion Survey, World Economic Forum. 1-to-7 indexes: – Property-Rights: on generic property including financial assets. – Intellectual-Property: including anti-counterfeiting measures. – Shareholders-Protection: to what extent are the interests of minority shareholders protected by the legal system. Weakness of Property Rights The evidence is similar when property rights are measured by the available objective proxies for horizontal property rights, i.e., length of adverse possession of personal property and the DBP investor protection index. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. . . . Empirical Evidence on . . . Executive Opinion Survey, World Economic Forum. 1-to-7 indexes: – Property-Rights: on generic property including financial assets. – Intellectual-Property: including anti-counterfeiting measures. – Shareholders-Protection: to what extent are the interests of minority shareholders protected by the legal system. Weakness of Property Rights The evidence is similar when property rights are measured by the available objective proxies for horizontal property rights, i.e., length of adverse possession of personal property and the DBP investor protection index. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. . . . Empirical Evidence on . . . Executive Opinion Survey, World Economic Forum. 1-to-7 indexes: – Property-Rights: on generic property including financial assets. – Intellectual-Property: including anti-counterfeiting measures. – Shareholders-Protection: to what extent are the interests of minority shareholders protected by the legal system. Weakness of Property Rights The evidence is similar when property rights are measured by the available objective proxies for horizontal property rights, i.e., length of adverse possession of personal property and the DBP investor protection index. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Property Rights and Financial Inefficiencies, . . . Unavailability-Financing: financial sector difficulties in providing products and services (1-to-7). Panel of 135 countries spanning the 2006-2015 period for which I observe all extra controls I use in the empirical exercise. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Private Rights and Market Power, . . . Market-Dominance: lack of competitiveness of corporate activity (1-to-7). Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Private Rights and Lemons-type Distortions, . . . Asymmetric-Information: falling with the information used by buyers to buy (1-to-7), e.g., 1 = sophisticated analysis of attributes; 7 = lowest price. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Property Rights, Transaction Costs, and the Limits of the Market. Private Rights and Incomplete Contracting Costs. Asset-Specificities: competitive advantage in international markets (1-to-7), e.g., 1 = low cost labor/natural resources; 7 = unique products and processes. Property rights are assigned to the downstream firms, which provide the main productive resources [Burk and McDonnel 2007, p. 594]. Class 2: The Law & Economics of Property Rights. Key Ideas. G-2017: Theory; Evidence. G-2016: Theory; Evidence. Appendices. Exogenous Transaction Costs. Exogenous Transaction Costs: Preferences . . . Society is composed by a mass one of original owners and a mass one of potential buyers, all having linear utility over a good x. While original owners value x at v > 0, potential buyers have a valuation λ uniformly distributed over [ λ,λ ] with l ≡ λ−λ, λ > v > λ, and λm ≡ λ+λ 2 . Each buyer can either expropriate her match at no cost or buy the good at v plus a transaction cost 0 < α < min { v,λ− v } with no social value, … Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. From Exogenous to Endogenous Property Rights. Carmine Guerriero (University of Bologna) Radzyner Law School, Herzliya. 03/09/2018. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Objectives and Organization. – You will learn how 1. to analyze the evolution over time and impact of property rights and, more generally, to build law into a formal model. 2. to critically evaluate the observed legal variation and to propose possible reforms to the existing arrangements. – The course is organized in three classes, i.e., 03-05-07/09/2018. – You will be assessed on the basis of a final 1000 words essay illustrating an application of the models discussed in class to one among 10 legal cases. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Objectives and Organization. – You will learn how 1. to analyze the evolution over time and impact of property rights and, more generally, to build law into a formal model. 2. to critically evaluate the observed legal variation and to propose possible reforms to the existing arrangements. – The course is organized in three classes, i.e., 03-05-07/09/2018. – You will be assessed on the basis of a final 1000 words essay illustrating an application of the models discussed in class to one among 10 legal cases. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Objectives and Organization. – You will learn how 1. to analyze the evolution over time and impact of property rights and, more generally, to build law into a formal model. 2. to critically evaluate the observed legal variation and to propose possible reforms to the existing arrangements. – The course is organized in three classes, i.e., 03-05-07/09/2018. – You will be assessed on the basis of a final 1000 words essay illustrating an application of the models discussed in class to one among 10 legal cases. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Objectives and Organization. – You will learn how 1. to analyze the evolution over time and impact of property rights and, more generally, to build law into a formal model. 2. to critically evaluate the observed legal variation and to propose possible reforms to the existing arrangements. – The course is organized in three classes, i.e., 03-05-07/09/2018. – You will be assessed on the basis of a final 1000 words essay illustrating an application of the models discussed in class to one among 10 legal cases. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Contents. – Classes: 1 details the evidence on the role of “property and contracting institutions produced by those considering them as exogenous. 2&3 illustrate a new literature studying the drivers of the protection of private property and providing, through their consideration, new conflicting evidence on the role of property rights. 3 discusses how essays should access avenues for further research. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Contents. – Classes: 1 details the evidence on the role of “property and contracting institutions produced by those considering them as exogenous. 2&3 illustrate a new literature studying the drivers of the protection of private property and providing, through their consideration, new conflicting evidence on the role of property rights. 3 discusses how essays should access avenues for further research. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Course Contents. – Classes: 1 details the evidence on the role of “property and contracting institutions produced by those considering them as exogenous. 2&3 illustrate a new literature studying the drivers of the protection of private property and providing, through their consideration, new conflicting evidence on the role of property rights. 3 discusses how essays should access avenues for further research. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Outline of Today Lesson. — What Types of Legal Institutions Do Matter? Exogenous Property Rights Versus Exogenous Contracting Institutions? — Towards Endogenous Property Rights: Predation Versus Disincentives. — Towards Endogenous Property Rights: Inefficient Exclusion From Trade Versus Inefficient Expropriation. — Final Essay (1000 Words): Structure. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Outline of Today Lesson. — What Types of Legal Institutions Do Matter? Exogenous Property Rights Versus Exogenous Contracting Institutions? — Towards Endogenous Property Rights: Predation Versus Disincentives. — Towards Endogenous Property Rights: Inefficient Exclusion From Trade Versus Inefficient Expropriation. — Final Essay (1000 Words): Structure. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Outline of Today Lesson. — What Types of Legal Institutions Do Matter? Exogenous Property Rights Versus Exogenous Contracting Institutions? — Towards Endogenous Property Rights: Predation Versus Disincentives. — Towards Endogenous Property Rights: Inefficient Exclusion From Trade Versus Inefficient Expropriation. — Final Essay (1000 Words): Structure. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Outline of the Course and of Today Lesson. Outline of Today Lesson. — What Types of Legal Institutions Do Matter? Exogenous Property Rights Versus Exogenous Contracting Institutions? — Towards Endogenous Property Rights: Predation Versus Disincentives. — Towards Endogenous Property Rights: Inefficient Exclusion From Trade Versus Inefficient Expropriation. — Final Essay (1000 Words): Structure. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. What Types of Legal Institutions Do Matter? Exogenous Property Rights Versus Exogenous Contracting Institutions? Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). A Closer Look at the Coase Theorem: . . . – If property rights are well defined, limited transaction costs—i.e., “any impediments or costs of negotiating—allow agents to efficiently organize transactions without state’s intervention and regardless of initial allocations. Remarks: 1. allocative efficiency, i.e., best use of goods, services, and inputs. 2. Efficiency and invariance of the bargaining depends on complete information, bilateral spillovers, and absence of hold-up failures. 3. Was Coase against regulation? Should then property be fully protected? ← e.g., Talking out-loud during lectures is worth 5 to one of you and induces a loss of 1 to everybody else. Then, we can reach allocative efficiency—you shutting up—by either assigning the property of silence to your colleagues or that of shouting to you and having you compensated for silence. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). A Closer Look at the Coase Theorem: . . . – If property rights are well defined, limited transaction costs—i.e., “any impediments or costs of negotiating—allow agents to efficiently organize transactions without state’s intervention and regardless of initial allocations. Remarks: 1. allocative efficiency, i.e., best use of goods, services, and inputs. 2. Efficiency and invariance of the bargaining depends on complete information, bilateral spillovers, and absence of hold-up failures. 3. Was Coase against regulation? Should then property be fully protected? ← e.g., Talking out-loud during lectures is worth 5 to one of you and induces a loss of 1 to everybody else. Then, we can reach allocative efficiency—you shutting up—by either assigning the property of silence to your colleagues or that of shouting to you and having you compensated for silence. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). A Closer Look at the Coase Theorem: . . . – If property rights are well defined, limited transaction costs—i.e., “any impediments or costs of negotiating—allow agents to efficiently organize transactions without state’s intervention and regardless of initial allocations. Remarks: 1. allocative efficiency, i.e., best use of goods, services, and inputs. 2. Efficiency and invariance of the bargaining depends on complete information, bilateral spillovers, and absence of hold-up failures. 3. Was Coase against regulation? Should then property be fully protected? ← e.g., Talking out-loud during lectures is worth 5 to one of you and induces a loss of 1 to everybody else. Then, we can reach allocative efficiency—you shutting up—by either assigning the property of silence to your colleagues or that of shouting to you and having you compensated for silence. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). A Closer Look at the Coase Theorem: . . . – If property rights are well defined, limited transaction costs—i.e., “any impediments or costs of negotiating—allow agents to efficiently organize transactions without state’s intervention and regardless of initial allocations. Remarks: 1. allocative efficiency, i.e., best use of goods, services, and inputs. 2. Efficiency and invariance of the bargaining depends on complete information, bilateral spillovers, and absence of hold-up failures. 3. Was Coase against regulation? Should then property be fully protected? ← e.g., Talking out-loud during lectures is worth 5 to one of you and induces a loss of 1 to everybody else. Then, we can reach allocative efficiency—you shutting up—by either assigning the property of silence to your colleagues or that of shouting to you and having you compensated for silence. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). A Closer Look at the Coase Theorem: . . . – If property rights are well defined, limited transaction costs—i.e., “any impediments or costs of negotiating—allow agents to efficiently organize transactions without state’s intervention and regardless of initial allocations. Remarks: 1. allocative efficiency, i.e., best use of goods, services, and inputs. 2. Efficiency and invariance of the bargaining depends on complete information, bilateral spillovers, and absence of hold-up failures. 3. Was Coase against regulation? Should then property be fully protected? ← e.g., Talking out-loud during lectures is worth 5 to one of you and induces a loss of 1 to everybody else. Then, we can reach allocative efficiency—you shutting up—by either assigning the property of silence to your colleagues or that of shouting to you and having you compensated for silence. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Low Transaction Costs Vs. . . . → Then, we care about legal traditions or origins, i.e., lawmaking institutions—i.e., case and statute law—that aggregate the citizens’ preferences and the firms’ technology into laws; adjudication institutions—i.e., discretion and bright-line rules—that determine the judges’ ability to make law. ← These rules enhance the reliance on contracts and, thus, are called by Acemoglu and Johnson (2005) contracting institutions. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Low Transaction Costs Vs. . . . → Then, we care about legal traditions or origins, i.e., lawmaking institutions—i.e., case and statute law—that aggregate the citizens’ preferences and the firms’ technology into laws; adjudication institutions—i.e., discretion and bright-line rules—that determine the judges’ ability to make law. ← These rules enhance the reliance on contracts and, thus, are called by Acemoglu and Johnson (2005) contracting institutions. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Low Transaction Costs Vs. . . . → Then, we care about legal traditions or origins, i.e., lawmaking institutions—i.e., case and statute law—that aggregate the citizens’ preferences and the firms’ technology into laws; adjudication institutions—i.e., discretion and bright-line rules—that determine the judges’ ability to make law. ← These rules enhance the reliance on contracts and, thus, are called by Acemoglu and Johnson (2005) contracting institutions. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Low Transaction Costs Vs. . . . → Then, we care about legal traditions or origins, i.e., lawmaking institutions—i.e., case and statute law—that aggregate the citizens’ preferences and the firms’ technology into laws; adjudication institutions—i.e., discretion and bright-line rules—that determine the judges’ ability to make law. ← These rules enhance the reliance on contracts and, thus, are called by Acemoglu and Johnson (2005) contracting institutions. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Large Transaction Costs . . . – If property rights are well defined, large transaction costs entail that legal entitlements—i.e., rights established by law and avoding that “might makes right (Calabresi and Melamed, 1972)—shape the efficiency of the final allocation, i.e., liability should be assigned to the least-social cost avoider. ← e.g., if we cannot contract on silence then assigning property rights on shouting leads to inefficiency. To fix this issue, we should then impose a liability rule such that the rest of the class can force silence by paying ex post strictly less than 1 but enough to induce your colleague to participate. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Large Transaction Costs . . . – If property rights are well defined, large transaction costs entail that legal entitlements—i.e., rights established by law and avoding that “might makes right (Calabresi and Melamed, 1972)—shape the efficiency of the final allocation, i.e., liability should be assigned to the least-social cost avoider. ← e.g., if we cannot contract on silence then assigning property rights on shouting leads to inefficiency. To fix this issue, we should then impose a liability rule such that the rest of the class can force silence by paying ex post strictly less than 1 but enough to induce your colleague to participate. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). In the Design of Markets. The, we should care about selecting the proper mix of property rules assigning the initial entitlement to a subject who can then voluntarily transfer it at a price of her/his choice; liability rules fixing the price at which the entitlement can be transferred without the need for a voluntary transaction; inalienability rules forbidding the voluntary transfer of the entitlement. ← Acemoglu and Johnson (2005) focus on the first ones and call them property rights institutions, since they think about state expropriation. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). In the Design of Markets. The, we should care about selecting the proper mix of property rules assigning the initial entitlement to a subject who can then voluntarily transfer it at a price of her/his choice; liability rules fixing the price at which the entitlement can be transferred without the need for a voluntary transaction; inalienability rules forbidding the voluntary transfer of the entitlement. ← Acemoglu and Johnson (2005) focus on the first ones and call them property rights institutions, since they think about state expropriation. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). In the Design of Markets. The, we should care about selecting the proper mix of property rules assigning the initial entitlement to a subject who can then voluntarily transfer it at a price of her/his choice; liability rules fixing the price at which the entitlement can be transferred without the need for a voluntary transaction; inalienability rules forbidding the voluntary transfer of the entitlement. ← Acemoglu and Johnson (2005) focus on the first ones and call them property rights institutions, since they think about state expropriation. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). In the Design of Markets. The, we should care about selecting the proper mix of property rules assigning the initial entitlement to a subject who can then voluntarily transfer it at a price of her/his choice; liability rules fixing the price at which the entitlement can be transferred without the need for a voluntary transaction; inalienability rules forbidding the voluntary transfer of the entitlement. ← Acemoglu and Johnson (2005) focus on the first ones and call them property rights institutions, since they think about state expropriation. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). In the Design of Markets. The, we should care about selecting the proper mix of property rules assigning the initial entitlement to a subject who can then voluntarily transfer it at a price of her/his choice; liability rules fixing the price at which the entitlement can be transferred without the need for a voluntary transaction; inalienability rules forbidding the voluntary transfer of the entitlement. ← Acemoglu and Johnson (2005) focus on the first ones and call them property rights institutions, since they think about state expropriation. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Acemoglu and Johnson (2005). – To evaluate the impact of contracting institutions Fc and property rights institutions Ic on economic development Yc, they run regressions of the type Yc = αFc + βIc + Z′iγ0 + �c, where Zi gathers the controls. Yc can be the GDP per capita, the investment over GDP, the private credit over GDP, and the stock market capitalization. Fc can be an index of formality in legal procedures for collecting on a bounced check, and two similar proxies for collecting an unpaid commercial debt. Ic can be the Polity IV constraint on the executive score, the PRS/Heritage Foundation subjective measure of private property protection. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Acemoglu and Johnson (2005). – To evaluate the impact of contracting institutions Fc and property rights institutions Ic on economic development Yc, they run regressions of the type Yc = αFc + βIc + Z′iγ0 + �c, where Zi gathers the controls. Yc can be the GDP per capita, the investment over GDP, the private credit over GDP, and the stock market capitalization. Fc can be an index of formality in legal procedures for collecting on a bounced check, and two similar proxies for collecting an unpaid commercial debt. Ic can be the Polity IV constraint on the executive score, the PRS/Heritage Foundation subjective measure of private property protection. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Inconsistent OLS and . . . – OLS: growth, investment, and financial development are correlated with both institutions (Table 2). Yet, such correlations do not establish causality. reverse causality: the two institutional arrangements Fc and Ic might be driven instead by Yc, i.e., the modernization hypothesis. omitted variable bias, i.e., heterogeneity, transaction costs, culture, and quality of law enforcement might determine both institutions and Yc. measurement error, i.e., we observe F̃c and Ĩc instead of Fc and Ic. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Inconsistent OLS and . . . – OLS: growth, investment, and financial development are correlated with both institutions (Table 2). Yet, such correlations do not establish causality. reverse causality: the two institutional arrangements Fc and Ic might be driven instead by Yc, i.e., the modernization hypothesis. omitted variable bias, i.e., heterogeneity, transaction costs, culture, and quality of law enforcement might determine both institutions and Yc. measurement error, i.e., we observe F̃c and Ĩc instead of Fc and Ic. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Inconsistent OLS and . . . – OLS: growth, investment, and financial development are correlated with both institutions (Table 2). Yet, such correlations do not establish causality. reverse causality: the two institutional arrangements Fc and Ic might be driven instead by Yc, i.e., the modernization hypothesis. omitted variable bias, i.e., heterogeneity, transaction costs, culture, and quality of law enforcement might determine both institutions and Yc. measurement error, i.e., we observe F̃c and Ĩc instead of Fc and Ic. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Inconsistent OLS and . . . – OLS: growth, investment, and financial development are correlated with both institutions (Table 2). Yet, such correlations do not establish causality. reverse causality: the two institutional arrangements Fc and Ic might be driven instead by Yc, i.e., the modernization hypothesis. omitted variable bias, i.e., heterogeneity, transaction costs, culture, and quality of law enforcement might determine both institutions and Yc. measurement error, i.e., we observe F̃c and Ĩc instead of Fc and Ic. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Consistent (?) 2SLS. – Exploit exogenous variation in Fc and Ic driven by colonial history: Fc = δ1Lc + η1Mc + Z′iγ1 + u1c where Lc is an English common law dummy ← primacy of common law legal origins (La Porta et al., 1997), which is however only putative (Guerriero, 2016a, b). Ic = δ2Lc + η2Mc + Z′iγ2 + u2c, where Mc is either the log mortality rate of European settlers or the log of the indigenous population density in 1500 ← exogenous allocation of political institutions due to colonialism (Acemoglu, Johnson, and Robinson, 2001, 2002). – The instruments enter in a separable way into the first stages (table 3). Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Consistent (?) 2SLS. – Exploit exogenous variation in Fc and Ic driven by colonial history: Fc = δ1Lc + η1Mc + Z′iγ1 + u1c where Lc is an English common law dummy ← primacy of common law legal origins (La Porta et al., 1997), which is however only putative (Guerriero, 2016a, b). Ic = δ2Lc + η2Mc + Z′iγ2 + u2c, where Mc is either the log mortality rate of European settlers or the log of the indigenous population density in 1500 ← exogenous allocation of political institutions due to colonialism (Acemoglu, Johnson, and Robinson, 2001, 2002). – The instruments enter in a separable way into the first stages (table 3). Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Consistent (?) 2SLS. – Exploit exogenous variation in Fc and Ic driven by colonial history: Fc = δ1Lc + η1Mc + Z′iγ1 + u1c where Lc is an English common law dummy ← primacy of common law legal origins (La Porta et al., 1997), which is however only putative (Guerriero, 2016a, b). Ic = δ2Lc + η2Mc + Z′iγ2 + u2c, where Mc is either the log mortality rate of European settlers or the log of the indigenous population density in 1500 ← exogenous allocation of political institutions due to colonialism (Acemoglu, Johnson, and Robinson, 2001, 2002). – The instruments enter in a separable way into the first stages (table 3). Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Main Results. – 2SLS estimates in tables 4-9 document that: 1. Ic has a first-order effect on all proxies for Yc; 2. Fc appears to matter only for the form of financial intermediation. – The results are robust to changing samples, controlling for macroeconomic policies, religion, and latitude, and employing firm-level data. ← Regardless of transaction costs, individuals can deal with weak contracting institutions by altering but cannot avoid predation!!! ↔ This makes sense only if predation is detrimental and sufficiently likely. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Main Results. – 2SLS estimates in tables 4-9 document that: 1. Ic has a first-order effect on all proxies for Yc; 2. Fc appears to matter only for the form of financial intermediation. – The results are robust to changing samples, controlling for macroeconomic policies, religion, and latitude, and employing firm-level data. ← Regardless of transaction costs, individuals can deal with weak contracting institutions by altering but cannot avoid predation!!! ↔ This makes sense only if predation is detrimental and sufficiently likely. Class 1: The Law & Economics of Property Rights. Outline. Exogenous Property Rights. Towards Endogenous Property Rights. Essay. Acemoglu and Johnson (2005). Main Results. – 2SLS … subject to choose for the essay – choose one subject 1. Theft of movable property. 2. Double sale of real estate. 3. Embezzlement: Embezzlement is the act of withholding assets for the purpose of conversion (theft) of such assets, by one or more persons to wh the assets were entrusted, either to be held or to be used for specific purposes 4. Sale of property without authority. 5. Invasion 6. Intellectual Property 7. Financial Intermediation: The process performed by banks of taking in funds from a depositor and then lending them out to a borrower. 8. Bankruptcy-deprivation minority shareholders. 9. Segmented Labor, Financial, and Housing Markets - A. offers to contract a third way (broker), where contract terms are less than market conditions. 10. Government Takings - The State expropriates property / rights from A to grant them to a B who knows how to exploit them better. MAIN IDEAS FROM CLASS TO USE IN THE ANSWER: MODELS TO USE IN THE ANSWER: CHOOSE SOME OF THEM TO USE IN THE ANSWER AND YOU CAN FIND INFORMATION ABOUT THEM IN PDF “l1”/”l2”/”l3” by searching the name of the model. You do not need to read the all L1 L2 L3 files in order to answer the question 1. The Weakness of Shareholders Protection. 2. Property Rights and Financial Inefficiencies. 3. Property Rights and Market Power. 4. Property Rights and Lemons-type Distortions. 5. Property Rights and Incomplete Contracting Costs. 6. Genetic Diversity. 7. Adverse Possession. 8. Property Private. 9. Property Market. 10. Property Professional. 11. Property Auction. 12. Good Faith. 13. Culture. 14. Enforcement. essay structure 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 …