Beyond Information Costs: Preference Formation and the Architecture of Property Law

Journal of Legal Analysis (Forthcoming)

Yale Law & Economics Research Paper No. 599

59 Pages Posted: 7 Oct 2018 Last revised: 10 Jul 2019

See all articles by Taisu Zhang

Taisu Zhang

Yale University - Law School

Date Written: July 8, 2019

Abstract

Contemporary property theory highlights information costs as the most important determinant of exclusion rights and numerus clausus-type standardization: rising information costs lead to stronger exclusion rights and more standardization—that is, a reduction in the number of allowed property forms—whereas falling information costs have the opposite effect. What this paradigmatic model lacks, however, is a theory of how and why information costs change in the first place. By developing such a theory, this article demonstrates that, in important cases, the legal impact of information costs tends to be counterbalanced by concurrent changes in individual preference, and that preexisting predictions about the relationship between information costs, standardization, and exclusion are therefore partially wrong, and otherwise incomplete.

Scholars have long understood that information costs, especially those related to property, are negatively correlated with social and political cohesion: tighter communities and stronger states correlate with lower information costs, whereas sociopolitical disintegration correlates with higher information costs. But this is only half the picture: sociopolitical cohesion is also negatively correlated with the diversity of individual preferences, in that higher levels of sociopolitical cohesion homogenize preferences, whereas sociopolitical disintegration diversifies them. Information costs and preference diversity are therefore synchronized in many sociopolitical contexts: when information costs rise (or fall), so does preference diversity.

Recognizing this synchronization challenges some of the central predictions of current property theory, but reinforces others. Most importantly, it implies that there is often no obvious correlation between information costs and legal standardization. Although rising information costs incentive more standardization, simultaneous increases in preference diversity drive up the frustration costs of standardization, and therefore incentive less standardization. Either side can emerge victorious from this legal tug-of-war. The article identifies several major historical episodes in which a sharp rise in information costs was, contrary to current theoretical predictions, followed by the creation of many new property forms. In contrast, the positive correlation between information costs and exclusion rights is perhaps even stronger than what current models predict: rising information costs boost the attractiveness of exclusion-based private property regimes, but so does the corresponding increase in preference diversity.

Keywords: Preference, Information Costs, Numerus Clausus, Standardization, Exclusion, Sociopolitical Cohesion

JEL Classification: K10, K11

Suggested Citation

Zhang, Taisu, Beyond Information Costs: Preference Formation and the Architecture of Property Law (July 8, 2019). Journal of Legal Analysis (Forthcoming), Yale Law & Economics Research Paper No. 599, Available at SSRN: https://ssrn.com/abstract=3249065 or http://dx.doi.org/10.2139/ssrn.3249065

Taisu Zhang (Contact Author)

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

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