Flood v. Kuhn

II. Property
A. The economics of property rights

3. Equilibrium property arrangements

    "Demsetz theorized that property arrangements in all societies evolve efficiently in response to change in technology, demand, and other economic conditions." (LEA179) 
    Demsetz, Harold. "Toward a theory of property rights." AER 57 (1967): 347. (LEA179n)

    Property rights systems emerge when "the costs of operating [a legal] system of property rights are less than the sum of all individual costs of private defense." (CU82)

    Sequential example:
    Hunting: do not privatize the land, "hunting is better with the quarry privatized" (to first spotter). (LEA116) Bailey, Martin "The Approximate Optimality of Aboriginal Property Rights," XXXV JLE 183 (1992).
    Grazing: Fencing is easier on large tracts, helping to explain communal grazing. (LEA182)
    Farming: "Risk analysis...suggests why the pioneers would begin to parcelize their lands after a period of time.... [A]fter a few years, the risk-spreading benefits of group land ownership would no longer outweigh its familiar shortcomings, such as the shirking that notably affected Jamestown and Plymouth." (LEA183)

    Technology is key:
    Ex: barbed wire

Property rights game plan:
    B. Acquiring property rights
    C. Exercising property rights
    D. Conflicting property rights
    E. Intellectual property rights

To do: select preferred paper for each (1) team; (2) wing; (3) the class

B. Acquiring property rights

    2 key questions for courts: 
    (Q1) who values rights most highly? (F112-3)
    98: Normative Hobbes Theorem: "[T]he law should allocate property rights to the party who values them the most." (CU 98)

    (Q2) if uncertain, then what assignment allows lowest-cost adjustment? (F112-3)
    97: "Normative Coase Theorem: Structure the law so as to remove the impediments to private agreements." (CU 97)

    Common practices:
    (1) "bright line rules"
    "simple and clear property rights." (CU97)
    Ex: "first in time, first in right." (CU97)

    (2) stare decisis --> "courts avoid the information costs of determining who values a right the most." (CU 98)
    Compare: private transaction costs (TC) vs. court information costs (IC)
    TC < IC => follow precedent
    TC > IC => award right to highest valuer (CU 99)

    (3) public recording of property claims 
    "makes determining ownership easier." (CU 97)

1. Initial assignment of property

        Ex1: gold

2 legal rules:     Rule 1: first possession (CU 76)         you dig it out of the ground, you own it     "Possession is nine-tenths of the law"     Rule 2: tied ownership         you own the land, you own what's under it     If you remove it and don't sell it, it gets stolen

Situation:
    2 homeowners: Yu and Mi
    Each has gold underground
    Value for each deposit: 20K today, $30K tomorrow

To do:
    (1) construct a payoff matrix for the decision by Yu and Mi to mine today or tomorrow
    (2) Indicate the cell they will end up in with the two alternative property assignment rules

    Which is more efficient?
    Tied ownership advantage: avoids rent-seeking costs such as preemptive investments

    Ex2: oil
    First possession advantage: cheaper to administer (lower cost of verifying rights)

    Cases:
    Haslam (p) v. Lockwood (d) 37 Conn. 500 (1871) -- first possession; illustrates claim of ownership (P84)

1. What are the facts of the case?
2. What did the appeals court decide? (new trial governed by  seaweed precedent--damages remained in need of determination)
3. What, if any, economic arguments did the court rely on?
4. In what way, if at all, does the court decision promote social welfare?
5. Do you agree with the court decision? Why or why not?
6. What if Lockwood had waited another day or so?
7. What if the court had ruled in favor of Lockwood? What incentives might that have created for property claimants such as Haslem?
8. Would you recommend a similar legal rule regarding recyclables collected for redemption?
9. What if the recyclables had been gathered from my trash?

Lessons: Assign rights to encourage behavior that promotes social welfare.
Illustrates first possession.