A central challenge in securing property rights is the subversion of justice through legal skill, bribery, or physical force by the strong—the state or its powerful citizens—against the weak. We present evidence that the less educated and poorer citizens in many countries feel their property rights are least secure. We then present a model of a farmer and a mine which can pollute his farm in a jurisdiction where the mine can subvert law enforcement. We show that, in this model, injunctions or other forms of property rules work better than compensation for damage or liability rules. The equivalences of the Coase Theorem break down in realistic ways. The case for injunctions is even stronger when parties can invest in power. Our approach sheds light on several controversies in law and economics, but also applies to practical problems in developing countries, such as low demand for formality, law enforcement under uncertain property rights, and unresolved conflicts between environmental damage and development.
Chinese housing prices rose by over 10 percent per year in real terms between 2003 and 2014, and are now between two and ten times higher than the construction cost of apartments. At the same time, Chinese developers built 100 billion square feet of residential real estate. This boom has been accompanied by a large increase in the number of vacant homes, held by both developers and households. This boom may turn out to be a housing bubble followed by a crash, yet that future is far from certain. The demand for real estate in China is so strong that current prices might be sustainable, especially given the sparse alternative investments for Chinese households, so long as the level of new supply is radically curtailed. Whether that happens depends on the policies of the Chinese government, which must weigh the benefits of price stability against the costs of restricting urban growth.
We present a model of stereotypes based on Kahneman and Tversky’s representativeness heuristic. A decision maker assesses a target group by overweighting its representative types, defined as the types that occur more frequently in that group than in a baseline reference group. Stereotypes formed this way contain a ‘‘kernel of truth’’: they are rooted in true differences between groups. Because stereotypes focus on differences, they cause belief distortions, particularly when groups are similar. Stereotypes are also context dependent: beliefs about a group depend on the characteristics of the reference group. In line with our predictions, beliefs in the lab about abstract groups and beliefs in the field about political groups are context dependent and distorted in the direction of representative types. JEL Codes: D03, D83, D84, C91.