Title: A Clear View of The Cathedral: The Dominance of Property Rules
Abstract: In their 1972 article, Guido Calabresi and A. Douglas Melamed introduced the now standard distinction between property rules and liability rules.1 A property right gives an individual the right to keep an entitlement unless and until he chooses to part with it voluntarily.2 Property rights are, in this sense, made absolute because the ownership of some asset confers sole and exclusive power on a given individual to determine whether to retain or part with an asset on whatever terms he sees fit. In contrast, a liability rule denies the holder of the asset the power to exclude others or, indeed, to keep the asset for himself. Rather, under the standard definition he is helpless to resist the efforts by some other individual to take that thing upon payment of its fair value, as objectively determined by some neutral party.3 Calabresi and Melamed would have made a major contribution if they had simply pointed out how these remedial choices recur in widely divergent substantive settings. Yet their article became enormously influential by pinpointing the key economic consequence that flows from these alternative specifications of remedial protection for any entitlement. Because property rules give one person the sole and absolute power over the use and disposition of a given thing, it follows that its owner may hold out for as much as he pleases before selling the thing in question. In contrast, by limiting the owner's protection to a liability rule, that holdout power is lost, and in its stead the owner of the thing receives some right to compensation for the thing that has been taken away from him against his will.