The Relative Burden of Determining Property Rules and Liability Rules: Broken Elevators in the Cathedral

Abstract

Judges routinely grapple with weighty tasks. Among these tasks, none is more important than choosing how to protect the rights and legal entitlements of the parties who appear before them. Guido Calabresi and Douglas Melamed offered one view of how judges discharge this task three decades ago, using their now well-known taxonomy of property rules and liability rules. Property rules protect entitlements by using the court's police powers to prohibit would-be interference; liability rules merely discourage interference through court-determined monetary compensation. Following Calabresi and Melamed, legal scholars developed and agreed upon various criteria for evaluating the relative advantages of these rules—criteria grounded in some form of justice or efficiency. Recently scholars have focused their attention on the court's ability to assess the requisite information to implement these rules. Here, however, they have not yet reached a consensus. Indeed, the discussion among commentators is characterized by diametrically opposed views. Some commentators maintain that judges find property rules informationally less burdensome than liability rules. In order to reach an optimal decision under a property rule, the court need only determine whether one party values the entitlement more than the other party. According to Richard Posner, this is easier than determining either party's value (which is required for a liability rule), "just as it is easier to determine whether one person is taller or heavier than another than it is to determine how tall or heavy either person is." Let's refer to this claim as the "eyeballing-differences" argument. Other commentators, such as Louis Kaplow and Steve Shavell, argue that when administering property rules, "the actual guesswork involved is necessarily greater than under liability rules" since property rules require both an estimate and a comparison of two values, whereas optimal liability rules require only sufficiently accurate estimates of one value. This claim implies that the information needed to apply liability rules is a subset of that which is needed for property rules—the so-called "information-subset" argument. While both the information-subset and the eyeballing-differences arguments appear plausible, their oppositional relationship suggests that both cannot be correct, nor in any case is it necessary that either argument is accurate. In this Article, I demonstrate that both arguments fail to provide a satisfactory answer to the fundamental question: How does one evaluate the relative difficulty of determining property rules and liability rules given the varying and limiting information structures faced by judges? I suggest a way to proceed by developing and then applying a heuristic model that highlights the salient issues at the heart of this specific question. My aim is not to present a general theory on the choice between property rules and liability rules. The elusiveness of a comprehensive theory is evidenced by the long and distinguished list of often conflicting contributions to this discussion. Rather, my aim is to analyze the specific debate concerning the evidentiary burden on the court in choosing between property rules and liability rules. The implications from this analysis are intuitive, yet revealing. Consider the hypothetical below, which offers a descriptive account of the principal claims and insights from the Article.