Study Questions: Unit III

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?

1.	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.

2.	"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)).
	d.	The possessor of $500 found hidden in a safe that the possessor was instructed by the safe's owner to sell.

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.

4.	Suppose you can find out whether there is a deposit of oil under my land by directing a radio wave under the surface of my land. You need not be directly over the deposit, i.e., within my boundary lines; the beam can be directed obliquely. Should I have the right to enjoin such electronic penetration as a trespass? Why or why not?

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.
	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
	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.	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?

IIID2-3. Other conflicting property rights topics (takings; divided and common ownership)

1.	a.	Consider a physical taking of private property for public use with fair market value paid as just compensation. What economic problem related to simply purchasing the private property is this remedy designed to address?
	b.	In what key respect does Poletown Neighborhood Council v. City of Detroit (1981) depart from the standard criteria that a taking must satisfy?
	c.	Prospective purchasers, generally of real estate, sometimes use false names in purchasing. Does this form of deceit have a potentially productive function, or, like other forms of fraud, should it be forbidden?

2.	The Endangered Species Act empowers the federal government to designate habitats of endangered species. Once such a habitat is designated, the owner of the land containing the habitat may not use the land in a way that endangers the habitat.
	a.	What sort of taking does a habitat designation illustrate?
	b.	Would you expect that compensation is paid if the designation diminishes the commercial value of the land? Explain briefly.
	c.	What incentives result from: (1) requiring compensation? (2) forbidding compensation?
	d.	One stated rationale for the Act is that rare species may have important human pharmacological or nutritional applications. Does economic reasoning suggest that the Act would be necessary for this purpose? Why or why not?

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.

1.	Discuss the notion of "equilibrium property arrangements," and use examples from the case of primitive societies to illustrate why it sometimes is and sometimes is not desirable to treat land, or other things, as private property.

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.	Is the right to exclude trespassers an absolute right or a qualified right? Which is more efficient? Why?

3.	If you were an author and received a flat percentage royalty from your publisher, would you want the publisher to charge a higher or a lower price for the book than the publisher would want to charge? Explain briefly.

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.	After a copyright expires, and the copyrighted work thus enters the public domain, should the work be deemed "abandoned" and a "finder" entitled to take out a new copyright on it? Why or why not?

4.	Consider trade secrets.
	a.	What legal protections exist for trade secrets?
	b.	Some critics have asserted that it does not make sense to provide legal protection for trade secrets, given the existence of patent and copyright options. Do you agree? Why or why not?