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Augmenting the Value of Ownership by Protecting It Only Partially: The "Market-Overt" Rule Revisited

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  • Barak Medina

Abstract

This article analyzes alternative rules for settling conflicts between right owner and a bona fide purchaser. The optimal rule, so it is argued, is the one which maximizes the expected value of the ownership right, given the risk of right violation. In order to maximize this value, one must seek to both mitigate the risk of right violation and augment a potential buyer's willingness to pay for the right. The analysis specifies the relevant parameters that define which rule is optimal in given circumstances, and proves that there are cases in which the value of the ownership right is maximized if the owner's right is only partially protected against innocent third parties. Two prevailing notions are challenged: first, that the "market-overt" rule necessarily induces buyers to invest fewer resources in prepurchase precautions, and second, that a buyer's willingness to pay is unaffected by the choice of the legal rule. Copyright 2003, Oxford University Press.

Suggested Citation

  • Barak Medina, 2003. "Augmenting the Value of Ownership by Protecting It Only Partially: The "Market-Overt" Rule Revisited," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 19(2), pages 343-372, October.
    • Handle: RePEc:oup:jleorg:v:19:y:2003:i:2:p:343-372
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    Cited by:

    1. Benito Arruñada, 2012. "Property as an economic concept: reconciling legal and economic conceptions of property rights in a Coasean framework," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(2), pages 121-144, July.
    2. Benito Arruñada, 2009. "The law of impersonal transactions," Economics Working Papers 1187, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
    3. Benito Arruñada, 2014. "The Titling Role of Possession," Working Papers 767, Barcelona School of Economics.
    4. Benito Arruñada & Giorgio Zanarone & Nuno Garoupa, 2019. "Property Rights in Sequential Exchange," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 127-153.
    5. Benito Arruñada, 2010. "Institutional Support of the Firm: A Theory of Business Registries," Working Papers 508, Barcelona School of Economics.
    6. John Armour & Michael J Whincop, 2005. "The Proprietary Foundations of Corporate Law," Working Papers wp299, Centre for Business Research, University of Cambridge.

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