Consent and exchange
By: Oren Bar-Gill, Lucian A. Bebchuk.
Contributors: Bebchuk, Lucian A.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13267.; Working paper series (National Bureau of Economic Research) -- working paper no. 13267.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 23
Subjects: Restitution
Description: In some cases, the law permits a party that unilaterally provides a benefit to another party to recover the estimated value of this benefit. Despite calls for expanding the set of cases to which such a restitution rule applies, the law commonly applies a mutual consent rule under which a party providing another with a benefit cannot obtain any recovery without securing the advance consent of the beneficiary to the transaction. We provide an efficiency rationale for the undesirability of broad use of the restitution rule by identifying significant adverse ex ante effects of the rule that are avoided by the consent requirement. Even assuming that courts' errors in estimating buyer benefits would be unbiased, a restitution rule would strengthen sellers' hand by providing them with a put option that they may but do not have to use. As a result, the restitution rule would encourage inefficient market entry by low-quality sellers that would not contribute to any efficient transactions but would be able to extract payments from buyers seeking to avoid an exchange with them. Furthermore, the restitution rule would discourage efficient market entry by some or all potential buyers of a good or service. Beyond the restitution rule, we extend our analysis to show that similar adverse effects can also arise from other "pricing" rules that provide buyers or sellers with call or put options to force an exchange at a judicially-determined price.
Notes: "July 2007."

Includes bibliographical references (p. 19-20).

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