Divergence and convergence at the intersection of property and contract

In this Article, we study rules that solve the conflict between the original owner and an innocent buyer of a stolen or embezzled good. These rules balance the protection of the original owner's property and the buyer's reliance on contractual exchange, thereby addressing a fundamental legal and economic trade-off. Our analysis is based on a unique, hand-collected dataset on the rules in force in 126 countries. Using this data, we document and explain two conflicting trends. There is a large amount of first-order divergence: both rules that apply to stolen goods and those that apply to embezzled goods vary widely across countries. Yet, there is also remarkable second-order convergence: virtually all legal systems protect the innocent buyer more strongly if the good was embezzled (rather than stolen) and if she purchased it in an open market, at an auction, or from a professional seller (as opposed to a private sale). We show that, while divergence is attributable to varying cultural values, convergence can be rationalized using a classic functional approach: these rules harmonize the owner's incentives to protect property and the buyer's incentives to inquire about title.