Test bank questions: Unit II: Property
General note: It is reasonable to anticipate better results if you can make use of basic information from the specific cases you've been assigned to read to make your answers more concrete.
| IIA. The economics of property rights | ||
| 1. | Answer the following questions about property rights. | |
| a. | What are some of the benefits and costs of a system of property rights? | |
| b. | Under what circumstances does the establishment of a system of property rights make economic sense? | |
| c. | What role does technology play in the economic feasibility of a system of property rights? | |
| 2. | Historically, the U.S. government has awarded property rights to broadcast frequencies to the parties which submit the most persuasive request. Studies indicate that the resulting allocation of broadcast frequencies has been approximately the same as would be expected if the government were to switch to a system in which it auctioned off the property rights to broadcast frequencies to the highest bidder. If so, would you expect any impact on efficiency of a switch by the government to an auction system? Explain why or why not. | |
| 3. | Consider the Supreme Court cases concerning the antitrust exemption for professional baseball. | ||
| a. | Recall that the Supreme Court granted baseball an antitrust exemption in its 1922 Federal Baseball decision. According to its 1972 opinion in Flood v. Kuhn: | ||
| "since 1922 baseball, with full and continuing congressional awareness, has been allowed to develop and to expand unhindered by federal legislative action. Remedial legislation has been introduced repeatedly in Congress but none has ever been enacted." | |||
| Does the Congressional inaction cited by the Court necessarily reflect fundamental Congressional intent, or could it be a result of rent seeking behavior? Explain briefly. | |||
| b. | Simon Rottenberg published "The Baseball Players' Labor Market" in 1956, four years before Ronald Coase published "The Problem of Social Cost." Rottenberg contrasted the allocation of players across teams with and without the reserve clause (which "reserved" for team owners the property rights to player contracts) and reached the following conclusion: | ||
| "Markets in which the freedom to buy and sell is constrained by the reserve rule...do not promise better results than do markets constructed on the postulate of freedom." [Rottenberg, 258]. | |||
| How does Rottenberg's conclusion foreshadow the Coase theorem? | |||
| IIB. Acquiring property rights | ||
| 1. | Consider bright-line rules: | |
| a. | What is a bright-line rule? | |
| b. | What economic purpose is served by bright-line rules? | |
| c. | Briefly describe some examples of bright-line rules. | |
| 2. | Briefly describe each of the following, and indicate if/when it is accepted under U.S. common law. | |
| a. | "First in time, first in right." | |
| b. | "Doctrine of ancient lights." | |
| c. | "Coming to the nuisance." | |
| d. | "Doctrine of necessity." | |
| e. | "Balancing of equities? | |
| 3. | A man discovers the entrance to a large scenic cave on his property. The cave runs under other people's property as well. | |
| a. | What are the two common legal options for assigning property rights to the cave? | |
| b. | How would you recommend that the property rights be assigned in a case like this? Support your decision. | |
| 4. | "Possession is nine-tenths of the law" - or not. Answer each of the following questions for the examples below: | ||
| (1) | Does the possessor have the property right? Why or why not? | ||
| (2) | What possibly inefficient incentives can arise as a result of the way the property right is assigned? | ||
| a. | The possessor of oil pumped from directly beneath a well located on the possessor's property from a pool of oil that spreads to several adjacent properties. | ||
| b. | The possessor of stolen merchandise bought by the possessor in good faith from a pawn shop. | ||
| c. | U.S. Gypsum, the possessor of timber it had harvested on Stack Island, located within its property line (Houston and Baker v. United States Gypsum Co. (1981)). | ||
| 5. | For each of the following cases, indicate what rule for assigning property rights is supported by the decision, and briefly explain how you decided. | |
| a. | Pierson v. Post (1805) | |
| b. | Houston and Baker v. United States Gypsum Co. (1981) | |
| c. | Fontainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc. (1959) | |
| IIC. Exercising property rights | ||
| 1. | Ownership of a piece of land is really ownership of a bundle of rights related to that land. | |
| a. | What rights make up the "Blackstonian" bundle of land rights? | |
| b. | How does each right help promote efficient use of a piece of land? | |
| 2. | Consider the right to exclude trespassers. | |
| a. | Is it an absolute right or a qualified right? | |
| b. | Briefly describe a case which focused on this right. What was the court's decision? Do you think the decision made economic sense? Why or why not? | |
| 3. | Sunk costs are irrelevant -- or not. Consider the case of Vincent v. Lake Erie Transport Co. (1910). | |
| a. | What options were available to the crew of the steamship Reynolds at the time of the storm? What choice did the crew make? | |
| b. | From the perspective of promoting efficiency, should the court decision regarding liability for damages depend on whether or not the crew's choice was negligent or blameworthy? If so, explain why. If not, explain why not, and discuss what the decision should be based on instead. | |
| IID. Conflicting property rights (Incompatible uses) | ||
| 1. | The law protects some entitlements (such as my ownership of my car) with a property right, and others (such as my right not to have people run into my car) with a liability right. | |
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a. | Briefly explain the difference between the two kinds of rules. |
| b. | What are the advantages of each? | |
| c. | How should we decide which to use in specific cases? | |
| 2. | A railroad runs through farming country; there is one railroad company and a hundred farmers. The railroad's locomotives throw sparks which sometimes start fires, doing $100,000 worth of damage each year. The railroad company could prevent the fires by installing spark arresters on its locomotives at a cost of $50,000/year. The farmers could prevent the fires by switching from wheat to clover, costing them $70,000/year in lost income. | ||
| a. | What is the efficient outcome? How did you decide? | ||
| b. | No transactions are possible between the farmers and the railroad. Decide which of the following will result in the efficient outcome, and explain briefly. | ||
| (1) | The railroad is free to throw sparks. | ||
| (2) | The railroad must pay the farmers damages for the fires caused by its sparks. | ||
| (3) | The railroad must pay a fine to the government for the damage due to the fires caused by its sparks. | ||
| c. | Repeat part b, assuming that transactions are possible and costless. | ||
| 3. | Airplanes make noise that disturbs residents of
homes near the flight path. Suppose that the airline can, at some cost, reduce the noise
to an insignificant level. Home owners can get the same reduction by soundproofing their
homes. For simplicity ignore the possibility of different levels of noise reduction--there
either is or is not a noise problem. There is one airline; it owns the airport. There are 2,000 homes near the flight path. Reducing noise costs the airline $1 million dollars a year. Sound proofing costs $400/year for each house. Airport noise (if there is neither soundproofing nor noise reduction by the airline) reduces the value of each house to its owner by $600/year |
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| a. | What is the efficient outcome? How did you decide? (Note: your outcome should specify whether or not (1) the airline reduces its noise and (2) the home owners install soundproofing.) | ||
| b. | Suppose that it is not possible for the airline to bargain with homeowners. Indicate and explain briefly what outcome would occur under the property right assignments reached in each of the following cases: | ||
| (1) | Fontainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc. (1959) | ||
| (2) | Estancias Dallas Corp. v. Schultz (1973) | ||
| (3) | Boomer v. Atlantic Cement Co. (1970) | ||
| (4) | Spur Industries v. Del E. Webb Development (1972) | ||
| c. | Do any of your answers in part b depend on whether the airline is assessed actual versus mitigated damages? Explain briefly. | ||
| 4. | In cases of conflicting uses, it is possible to assign a property right with or without liability for damages. Does economic analysis suggest that assigning liability for damages increases or decreases the likelihood of a achieving an efficient final outcome? Explain. | |
| 5. | Briefly describe the difference between each of the following options, and discuss the efficiency issues at stake: | |
| a. | Temporary versus permanent damages. | |
| b. | Actual versus mitigated damages. | |
| 6. |
In Boomer v. Atlantic Cement Co. (1970), did the court assign temporary or permanent damages? Do you agree with the court's choice? Why or why not? |
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| 7. | A tuberculosis sanatorium is built in a residential area. Property values decline because the residents fear contagion from the patients in the sanatorium. Their fear has no scientific basis. Should the sanatorium nonetheless be deemed a nuisance if the fall in residential property value is greater than the increase in the value of the parcel of land used for the sanatorium? | |
| 8. | Consider the following information from a lawsuit decided in 1982: The plaintiff is the owner of a residence built in 1979. The residence has a solar system which includes collectors on the roof to supply energy for heat and hot water. After the plaintiff built his solar-heated house, the defendant purchased the lot immediately to the south of the plaintiff's lot and commenced planning construction of a home. When the plaintiff learned of defendant's plans to build the house he advised the defendant that the proposed location of the defendant's house would substantially and adversely affect the integrity of the plaintiff's solar system. Plaintiff requested defendant to locate his home an additional several feet away from the plaintiff's lot line. Plaintiff and defendant failed to reach an agreement on the location of defendant's home, and defendant started construction. The plaintiff filed a complaint claiming entitlement to "unrestricted use of the sun and its solar power" and demanding an injunction against construction of the defendant's house. If you were the judge in this case, would you have granted the injunction? Why or why not? | |
| 9. | Consider Prah v. Maretti (1982), the conflicting use case dealing with solar energy panels that was adapted for mock trial #1. | |
| a. | What precedent assigned in class was most helpful for the defense? What made it helpful for the defendant? | |
| b. | In the mock trial, counsel for the plaintiff applied the "balancing of equities" principle from Estancias Dallas Corp. v. Schultz (1973). Discuss how the principle could be applied to Prah v. Maretti. | |
| IIE. Intellectual property | ||
| 1. | Suppose that patent and copyright protection were eliminated. | |
| a. | Would creative endeavor cease? Why or why not? | |
| b. | Would efficiency necessarily decrease? Why or why not? | |
| 2. | Under current law, copyrights are given easily and protect for a long time; patents are much harder to get and protect for a much shorter time. Does this difference make sense? Why or why not? | |
| 3. | Consider MGM v. Grokster (2005), the intellectual property rights case dealing with file downloading that was adapted for mock trial #2. | |
| a. | What precedent assigned in class was most relevant to the case? What aspect of the case made it helpful for the defendant? The plaintiff? | |
| b. | A difficulty expressed during the mock trial was how to decide on the amount of damages to award MGM. What does Lowell v. Lewis (1817) say about how much a plaintiff should recover in a case of infringement? | |
Overlapping topics
| 1. | a. | What two common legal options could the court have used to assign property rights in Hammonds v. Central Kentucky Natural Gas Co. (1934)? |
| b. | What method of acquiring ownership was illustrated by Houston and Baker v. United States Gypsum Co. (1981)? | |
| c. | What right in the "Blackstonian" bundle of land rights was at issue in Ploof v. Putnam (1908)? | |
| d. | As illustrated in Vincent v. Lake Erie Transport Co. (1910), what economic efficiency purpose is served by assessing damages against a defendant whose conduct is not negligent or blameworthy? | |
| e. | A man discovers the entrance to a large scenic cave on his property. The cave runs under other people's property as well: What are the two common legal options for assigning property rights to the cave? | |
| 2. | Consider the case [insert name of any assigned case]. | |
| a. | What were the basic facts of the case? | |
| b. | What key lesson(s) or conclusion(s) come out of the case? | |
| c. | What incentives or consequences does the outcome of the case create? | |
| d. | Do you agree with the outcome of the case? Why or why not? | |