Economics Dictionary of Arguments

Home Screenshot Tabelle Begriffe

 
Liability: Liability refers to legal obligations or debts that an individual, business, or entity owes to others. It can include financial responsibilities, legal commitments, or duties to perform certain actions. Liabilities encompass loans, accrued expenses, mortgages, or any claims against assets and are recorded on balance sheets, reflecting what is owed and to whom. See also Tort law, Duties, Responsibility.
_____________
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

 
Author Concept Summary/Quotes Sources

Douglas Melamed on Liability - Dictionary of Arguments

Parisi I 19
Liability rules/property rules/Calabresi/Melamid/Miceli: The classic paper by Calabresi and Melamed (1972)(1) addresses the manner in which rights or entitlements, once assigned, are legally protected and transferred.
Parisi I 20
They distinguished between ...
Property rules: ... under which an entitlement can only be transferred if the holder of the entitlement consents; and ...
Liability rules: ..., under which a party seeking to acquire an entitlement can do so without the holder’s consent provided that he or she is willing to pay compensation for the holder’s loss.* Property rules: Property rules therefore form the basis for market (voluntary) exchange, while... Liability rules: ... liability rules form the basis for legal (forced) exchange.
Markets: Because market exchange is consensual, it ensures a mutual benefit, or the realization of gains from trade.
Law/property rules: : The role of the law in such transactions is limited to the enforcement of property rights and contractual exchange of entitlements. In other words, law is complementary to markets in promoting the efficient allocation of resources.
Law/liability rules: In the case of liability rules, on the other hand, the law takes the primary role of forcing an exchange of the entitlement on terms dictated by the court. Here, the law is a substitute for market exchange in organizing the transfer of entitlements because bargaining costs preclude voluntary transfers.
Externalities/liability: The choice between market and legal exchange depends on the trade-off between the transaction costs associated with bargaining over the price, and errors by the court in setting the price. >Coase Theorem/Miceli.
Property rule/Miceli: (...) suppose that farmers situated along a railroad track have the legal right to be free from crop damages caused by sparks, and that right is protected by a property rule. The railroad would then have to secure the agreement of all farmers in order to run trains along a given route, a prospect that would likely prevent any trains from ever running due to high bargaining costs.
Liability rule: If the farmers’ rights were instead protected by a liability rule that only required the railroad to compensate farmers for any damages but did not allow the farmers to prevent trains from running, the railroad would internalize the harm through the assessment of liability for damages, and it would run the efficient number of trains.
Legal problem: This arrangement, however, places a heavy burden on the court to measure the damages suffered by victims accurately. If it underestimates the damages, the railroad will run too many trains, and if it overestimates damages, the railroad will run too few.

* Calabresi and Melamed also discuss a third rule, called an inalienability rule, which prohibits the exchange of an entitlement under any circumstances, including consensual exchange. Examples include constitutional protections of certain fundamental rights, like speech and religion, as well as laws prohibiting the sale of organs, children, and cultural artifacts.


1. Calabresi, Guido and A. Douglas Melamed (1972). “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral.” Harvard Law Review 85: 1089–1128.


Miceli, Thomas J. „Economic Models of Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.


_____________
Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Melamed, Douglas
Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017


Send Link

Authors A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   Z  


Concepts A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   Z