Tuesday, September 30, 2008

Lewinsohn-Zamir on Identifying Intense Preferences

Daphna Lewinsohn-Zamir (Hebrew University - Faculty of Law) has posted Identifying Intense Preferences on SSRN.  Here's the abstract:

People's preferences vary in intensity: some are relatively strong while others are comparatively weak. Information regarding the strength of preferences is essential for legal policy making for reasons of both efficiency and fairness. However, the identification of intense preferences is no easy task. Individuals may strategically misrepresent the intensity of their preferences to improve their position. In recent years, the Law-and-Economics literature has largely focused on one aspect of this issue: the case of owners' subjectively high valuation of land. Several scholars have proposed various techniques to detect people's true preferences, relying on self-assessments. These techniques require case-by-case inquires, involve monetary payments, and employ sanctions to ensure truthfulness.

This Article argues that the land-valuation problem is but a specific manifestation of a much broader concern. The need to identify intense preferences arises in all fields of law and with respect to all types of entitlement. More importantly, fundamentally different methods can be used to detect strong preferences. Identifiers may be generalized rather than case-specific, entail burdens in-kind rather than monetary ones, and adopt non-penalizing rather than penalizing approaches.

Legal rules, as this Article demonstrates, can employ generalized and non-penalizing (GNP) devices to identify intense preferences. Such identifiers include: use value vs. exchange value, possession, declining marginal utility, redemption and reasons-requirement. These identifiers tacitly underlie a large variety of rules governing such diverse issues as rights of first refusal, takings compensation, self-help remedies, children's adoption, secured transactions and conscientious objection.

The Article further argues that GNP identifiers are superior to alternative techniques. It compares GNP devices to four other methods: "Mouth" (reliance on people's verbal statements alone); "Mouth and Purse" (verbal statements backed up by monetary sanctions); "Generalized and Penalizing" (generalizations that utilize willingness to bear in-kind sanctions); and "Case-Specific and Penalizing" (case-by-case detection via readiness to incur non-monetary burdens). GNP techniques score highly on all parameters of evaluation. They treat people with dignity and respect, afford equal treatment to their preferences, do not favor the rich, and at the same mitigate the risk of lies. In addition, GNP methods entail relatively low administrative costs and can contend with objectionable preference-intensities.

Ben Barros

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