Jim Whitney Economics 357

III. Property
D. Conflicting property rights
    2. Takings
    a. basic analysis (cont'd.)

    (iii) "for public use"

    Private parties face the holdout problem too.
    Ex: "the developers of a new baseball stadium in Denver purchased all the land except for the property or one 'holdout,' whom the newspaper called 'the guy who owns first base.'" (CU177)
    1994: A trust held by the Cowperthwaite family was awarded total compensation of $ 2,375,036. The decision by arbitrator Mitchel B. Johns, a former Denver judge, is binding and cannot be appealed.

    Why not for private use too?

    Risk of rent seeking

    (iv) requires "just compensation"

    "fair market value"

    to finance just compensation requires "the government must take, without compensation, from the taxpayer." (P59)

    So what is the net efficiency gain of requiring just compensation?

    "[T]he requirement of compensation can be viewed as a device to channel government finance into taxes and away from takings." (CU175)
    Advantages: Government internalizes policy costs and spreads risks (CU178)
    Disadvantage: Reduces private sector incentives for careful investment planning

 

    Poletown Neighborhood Council v. City of Detroit 410 Mich. 616 (1981)

  1. What are the facts of the case?
  2. What did the Supreme Court of Michigan decide?
  3. In his dissent, Justice Ryan describes the area of the taking as "tightly-knit residential enclave of first- and second-generation Americans." If so, then what sort of under-compensation risk could result?
  4. In what key respect does this case push the envelope of the takings clause?
  5. Does the court discuss any sort of public good or public use at stake here?
  6. How do we usually handle problems of the sort discussed by the court?
  7. What economic incentives does this decision risk creating for other businesses?

Illustrates taking for a debatable public purpose
    Father-in-law as city attorney for Santa Fe Springs did the same for city redevelopment but expressed discomfort about doing it

 

    b. Regulation versus taking

    Ex: Taking: government takes 10% of your property for a drainage ditch
Regulation: Government blocks your residential development of wetlands property and your property value falls 10%.

 

    Pennsylvania Coal Co. v. Mahon 260 U.S. 393 (1922) -- Justice Holmes: The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking. (LEA226)
    Only says that such a line might exist without saying where it goes, or why it matters." (LEA220)
    Prior, physical invasion was necessary for such a 'taking' to occur. (LEA226)

  1. What are the facts of the case?
  2. What did the Supreme Court decide?
  3. Why is this case considered a regulatory taking rather than a physical taking?
  4. How did the plaintiffs, the Mahons, justify the voiding of existing real estate contracts?
    5.
  5. Would the Mahons have received any advantage from such a contract at the time it was made?
  6. Was there an unavoidable threat to human life at stake here? Why or why not?
  7. Does the court claim that compensation for regulatory behavior is always required?
  8. Why compensate in this case?
  9. In his dissent, what approach does Brandeis recommend in deciding on what use of land is efficient?

Extends takings to include regulation

 

    Keystone Bituminous Coal Association v. DeBenedictis 480 U.S. 470 (1987)

  1. What are the facts of the case?
  2. What did the Supreme Court decide?
  3. How does the outcome differ from Pennsylvania Coal v. Mahon?
  4. How does the Pa. law under litigation differ regarding what property is explicitly protected?
  5. About how much coal was estimated to be affected by the Pa. law?
  6. Why does that matter?

Exempts substantial regulation from compensation requirement

 

    present status: compensation is not paid for regulations (CU178)

    regulation takings are costly to compensate because of broad impact. 
    Also, gov't does not charge landowners for beneficial impacts from regulations. (P58)

    Advantage: incentive for cautious private investments
    Disadvantage: incentive for excessive government regulation (CU181)

    Zoning

    In theory, zoning reduces a nuisance

    Zoning is not compensated--which avoids an incentive to create nuisances. (P59)
    "[I]n reality, zoning is a highly political institution"--lots of rent seeking. (CU186)

 

    3. Divided and common ownership

    a. Divided ownership

    landlord-tenant: do not always get optimal investment by tenants. "tenant customary rights" in Ireland arose to prohibit eviction (including by higher rents) to ensure longer tenancy so that tenant could get return on improvements. But customary rights made it harder for landlords to pay for improvements since it impeded rent increases. (P72)
    lease: may contain a development clause because if lessor is paid a royalty on receipts, lessee may underdevelop property since lessee pays all of development costs (oil wells). (P73)
    Property lines: often bilateral monopoly in divided ownership cases. Law sometimes allows suit for 1/2 of fence costs. (P74)

    b. Common ownership

    Ex: "land owned in common": "joint tenancy, common tenancy, tenancy by the entirety, and life interest with reversion" (F116)

    Conflict of interest --> Voting rules

    Ex: Corporations: Conflicts of interest among owners --> legal rules requiring equal treatment. (F114)
    Rules forbid a majority group of stockholders in a corporation from transferring the firm's assets to themselves at the expense of the minority stockholders." (F114)

    "controlling property by majority vote. . . . [t]urns out to be a common, and arguably efficient, rule for controlling the use of fugitive resources: oil and gas."
    Example: pool of oil; pumped "too fast."
    Remedy: unitization--typically requires a 2/3 vote. "The landowners as a group then agree on how the oil is to be extracted and share the resulting income. Conflicts of interest among the landowners are reduced by legal rules requiring equal treatment; a majority group cannot simply vote to pump all the oil and give the income to its members." (F114)

    Homeowner associations--have increasingly replaced restrictive covenants (P66)
    Restrictive covenants may be specified to be renewed by majority vote after stipulated time, and may be ruled obsolete by courts.

 

III. Property

E. Intellectual property
    The single most important current area in property law assignment--most real estate is owned but idea space is still wide open

1. Economic analysis

    a. The economics of intellectual property (IP)

    Recall the goal of property rights: improve allocation of resources
    Do property rights in intellectual property improve allocation of resources?

    What's wrong with downloading music and movies from the internet?

    Intellectual property has the characteristics of a pure public good

    Characteristics of a pure public good: 
    (i) non-depletable and (ii) non-excludable
   => (i) MC of permitting another user to consume existing public goods is about zero and (ii) difficult to exclude free riders