We show that efficient exchange obtains independently of the degree to which a legal system protects the rights of owners. We study a number of different legal rules, including property rules (strong protection), liability rules (any party can take the owner's asset but must pay a legally determined compensation), and even rules that protect the owner's interests very weakly (liability rules with a very low compensation level). Efficiency is obtained as long as the degree of protection provided by law and by the bargaining protocol is not “too” inversely correlated with a party's valuation of the asset. (JEL D21, D51, K11, 034, P14)
Consumers make mistakes. Imperfect information and imperfect rationality lead to misperception of benefits and costs associated with a product. As a result consumers might fail to maximize their preferences in product choice or product use. A proposed taxonomy of consumer mistakes draws attention to a less-studied category of mistakes: use-pattern mistakesmistakes about how the consumer will use the product. Use-pattern mistakes are prevalent. Sellers respond strategically to use-pattern mistakes by redesigning their products, contracts and pricing schemes. These strategic, design responses often exacerbate the welfare-costs associated with consumer mistakes. From a policy perspective, focusing on disclosure regulation, the importance of use-pattern mistakes requires more, and better, use-pattern disclosure. In particular, sellers should be required to provide individualized use-pattern information.
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