Property I Professor Donald J. Kochan

1. Property IProfessor Donald J. Kochan Class 8

2. A View From the Cathedral • By the end of the semester, you should grasp Calabresi & Malamed • The distinction between property rules, liability rules, and inalienability rules shapes the concept of dominion • And, it relates to the choice of remedy – particularly between injunctions and damages • Consider how these categories affect all of the topics studied • See TWEN for article

3. James Madison and “The Boxer” Quotes from James Madison, Property -- 29 Mar. 1792 Papers 14:266--68 • This term in its particular application means "that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual." • In its larger and juster meaning, it embraces every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage. • In the former sense, a man's land, or merchandize, or money is called his property. • In the latter sense, a man has a property in his opinions and the free communication of them. • He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them. • He has a property very dear to him in the safety and liberty of his person. • He has an equal property in the free use of his faculties and free choice of the objects on which to employ them. • In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights. • Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.. . . • Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own. . . . The Papers of James Madison. Edited by William T. Hutchinson et al. Chicago and London: University of Chicago Press, 1962--77 (vols. 1--10); Charlottesville: University Press of Virginia, 1977--(vols. 11--).

4. The Boxing Analogy (cont.) • Can I punch you with impunity? (state of nature/no remedy/no rights to exclude/Hobbes issues) • Can you use the law to keep me from punching you? (Lockean world/yes on right to exclude/property rule/damages or injunction issues) • Can I let you punch me even if without my permission you otherwise could not? (still Lockean world (or I suppose state of nature as well)/yes on right to include/still right to exclude/still property rule or perhaps inalienability rule/voluntary agreement so no damages or injunction – but remember human values may make it an inalienability rule) • Should the rules allow you to punch me without my consent so long as you pay me (liability rule/lack of right to exclude/right to include is irrelevant/compromise position – look at relative utility because if maximization of utility is your metric and puncher gets 10 units of pleasure and punched gets only 5 units of pain, well . . .?) • Remember to return to this after you read Coase and Calabresi & Malamed • You should get a foundational understanding of each from the Madison/Boxer lecture. The Madison essay is on TWEN and at the link below: http://press-pubs.uchicago.edu/founders/print_documents/v1ch16s23.html

5. Property Rules, Liability Rules, &Inalienability Rules • Property Rules: I have the Right to Exclude you from hitting me; but I own myself and have the right to include you (in other words allow you to). I have the right to prevent the imposition of a negative externality on myself – enjoin you from doing so. For example, a right to keep you from dumping trash in my backyard. But, I have the corresponding right to give up this stick and include your trash. • Liability Rules: I do NOT have the right to exclude you from hitting me, but you will be liable for the harm you caused. And the trash example, I CANNOT keep you from dumping, but if do you must pay. • Inalienability Rules: Society has decided the stick cannot be bargained or negotiated away, so even if I want to let you do X, I am not legally allowed to let you do it. • What is dominion? What does this have to do with the “sticks in the bundle” analogy? • Return to these concepts after you read Calabresi & Malamed later in the semester. • Also return after you read Coase, because the initial assignment AND characterization of the property right/rule plays a big role in issues of use, transfer, etc.

6. Coase Theorem • You need to understand the basics of Coase • It is fundamentally about the initial ASSIGNMENT of property rights • Think of it as who gets to tell who what to do See TWEN for: http://lsolum.typepad.com/legal_theory_lexicon/2003/09/legal_theory_le_1.html and http://www.sfu.ca/~allen/CoaseJLE1960.pdf

7. Coase Theorem (cont.) • Initial Assignment • Assume Zero Transaction Costs • Unrealistic, yes • Utility/Instructive though? Why? • Assignment Alteration • Ignore Efficient Outcome Issues for Now – the what we should do with what we know or how we adjust best is beyond our concern for now

8. Coase Theorem (cont.) • Example 1: • P + 100 • R -50 • Example 2: • P +50 • R -100 • Assuming zero transaction costs and we are assigning the right to exclude or not giving the right to exclude (i.e. give the right to pollute), what result in each example? Do we “get” pollution?

9. Table I: The Dynamic Circle of Land Use Regulation Mechanisms in Property Law