Rigidity vs. License
A central problem in organization of society is to choose rules for making choices when people's interests conflict. Economists have had much to say about such problems when compensating payments are possible. In practice, however, such payments are often not made, and decisions are either rigidly imposed by a central authority or taken unilaterally by one of parties concerned, who we say has the to choose outcome. In this paper, without asking why these rules are common, I ask which is most efficient. I assume that interested parties know more about their preferences than does central authority (the government). This is a reason to give one of them right to decide outcome: in this model, rights are a decentralization device (see Partha Dasgupta, 1980), and since I assume a benevolent government, there is no role for decentralization without private information. But, while this private information can make delegated decision more efficient than an undelegated and rigid central decision, there is a countervailing problem: an interested party chooses selfishly and ignores even what is common knowledge about others' preferences, which benevolent though ignorant government would take into account. Thus we find that giving an interested party right to choose is more desirable when he has important private information, but less desirable when he and others are very much in conflict.
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