Against Endowment Theory: Experimental Economics and Legal Scholarship

Abstract

Endowment theory holds the mere ownership of a thing causes people to assign greater value to it than they otherwise would. The theory entered legal scholarship in the early 1990s and quickly eclipsed other accounts of how ownership affects valuation. Today, one finds appeals to a generic "endowment effect" throughout the legal literature. Recent experimental results, however, suggest that the empirical evidence for endowment theory is weak at best. When the procedures used in laboratory experiments are altered to rule out alternative explanations, the "endowment effect" disappears. This and other recent evidence suggest that mere ownership does not affect willingness to trade or exchange. Many experimental economists no longer ascribe to endowment theory. Legal scholars, however, continue to rely on endowment theory to predict legal entitlements' probable effects on expressed valuations. That reliance is no longer warranted. Endowment theory's influence in legal scholarship provides important lessons about how legal scholars and policymakers should, and should not, use results from experimental economics.

Explanations of the endowment effect: an integrative review

“…A prominent debate in economics concerns whether WTP-WTA gaps simply reflect a misunderstanding of the elicitation procedures in the valuation paradigm [46][47][48][49][50]. If participants believe they are in a negotiation, they may strategically misrepresent their valuation of the good.…”

The Valuation of Moral Rights: A Field Experiment

“…Under a rational choice framework, our incentive-compatible design is equivalent to this alternative design. If both designs led to different results, it would most likely follow from an endowment effect (from the lively empirical debate, see only Kahneman, Knetsch et al 1990, Korobkin 2014, Plott and Zeiler 2005, Klass and Zeiler 2013. Normatively, one may discuss whether willingness to pay or willingness to accept are relevant.…”

The Dangerous Allure of Libertarian Paternalism

“…25 See Plott and Zeiler (2005) citing articles that defend the WTP-WTA gap. For a later reiteration of the theme, see Klass and Zeiler (2013).…”