Think about the oldest and most familiar principles of American law, property and proportional liability, in a new and surprising way, and learn to apply economic reasoning to an especially important and interesting aspect of life.
A Neighborly Dispute
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Del curso dictado por Wesleyan University
Property and Liability: An Introduction to Law and Economics
243 calificaciones
De la lección
Property
Property is where law and economics meet, but it's not a simple concept. Property is not an object or a relation between people and objects, but a set of rights, relations among people over who is to control each of the many uses to which objects can be put. Different people may control different uses of an object, that is, have different property rights over its various uses, at the same time, or control the same use of the object at different times. When new uses create disputes, the law must define new property rights and allocate them initially to resolve the dispute – someone must be deemed to have won the dispute and be given initial ownership of the new rights. But once the former disputants are allowed to trade these rights among themselves, surprising results follow.
Conoce a los instructores
Richard AdelsteinProfessor
Department of Economics
Hi everyone, welcome back. In the last lecture I suggested that new
property rights are often the result of disputes over how particular objects are
going to be used. When someone tries to use an object in a
particular way and somebody else objects to that persons use of the object in that
way and they can't reach some sort of informal agreement.
Then typically they go to a court and they ask the court to resolve the dispute for
them. The court does so by either saying that
the person has the right to use that object in the way that he or she claims,
or alternatively that the other person, the objector, has the right to control
that use of the object and can stop the first person from using the object in that
way. When a court makes a decision like this,
as we've suggested, it pulls an empty arrow out of a quiver, attaches a label to
the arrow, and hands the arrow to the winner of the dispute.
In these next few lectures I'd like to elaborate on some of these points and
develop them a bit further. In the context of an extended example
about a particular kind of dispute over the use of somebody's house.
So I'll begin by telling a short about two neighbors, whom I'll call Hamilton and
Jefferson, great names out of American history, and names that I've chosen so the
two parties will have something to dispute over.
Let's assume that Hamilton and Jefferson each lives in a small house in a small
town, and that their houses are next to one another, and that there aren't any
neighbors near enough to be bothered by anything that might happen between
Hamilton's house and Jefferson's house. When we raise the curtain on the story,
we'll first have a look at Tom Jefferson's house.
There it is. It's a small house and as you'll notice,
it has a small room on the right hand side, an alcove as we call it, and Tom
uses that room as a playroom for his daughter, who we'll call Rachel.
As we open the curtain on the, on the story, you see the number 1000 under
Jefferson's home, and that number is meant hypothetically to represent the value of
all of all the property rights that Jefferson owns to that building to
Jefferson himself. So for example.
$1000 measures the value to Jefferson of the entire quiver of property rights that
Jefferson actaully owns in his house. To say that he values this quiver of
rights at $1000 means that if somebody were to offer him $1001.
For all of his property rights, for the entire quiver of rights that he owns,
relative to that particular house, then Jefferson would accept the offer, because
$1,000 is more, excuse me $1,001 is more than $1,000.
Alternatively if somebody were to offer Jefferson only $999 for his quiver, he
would refuse the offer because the quiver is worth more to him than the offer that
he has from this other individual. Sitting next to Jefferson's house, let's
assume, is Hamilton's house. It's a federal house, perhaps quite
appropriately for Alex. And you'll notice the number 1200 under
Hamilton's name. That's meant to signify exactly the same
sort of thing as the number under Jefferson's name signified, and that is
Hamilton owns a quiver of property rights, which are attached to his house.
And the value to him of the entirety of the quiver of property rights that he owes
to his own house is $1200. That means if somebody were to offer him
$1201 for his quiver, he would sell it. But if somebody were to offer him $1199
for the quiver, then he wouldn't sell it. Now let's suppose a change in the
situation occurs, and it occurs because Jefferson has been given a brand new
business opportunity. Suppose that in the town where Hamilton
and Jefferson live, there's a factory that makes sirens.
And the siren factory comes to Jefferson and offers him a business deal.
Tom may say every day at 5 p.m., we'll bring a truck by your house and the truck
will contain all of the sirens that we've produced at the factory during the day,
would typically produce about 200 or 250 sirens in a day.
What we'd like you to do is to take the equipment that we're going to give you and
do quality testing on the sirens that we've made.
We'll ask you to test each siren to see that it works, and if the siren works, you
simply mark it with a tag that says that it works and put it in the bin that holds
the sirens that work. And for the few sirens that don't work,
you put a different tag on them and put them on the defective box, and we'll take
those back the next morning with the, the sirens that have been tested to work well
and we'll take care with the rest. How does he test the sirens?
Well, the equipment that he's been given is very simple.
It's simply a battery with two wires, he connects the two wires to each siren and
then he sees whether the siren makes a noise.
If the siren works, it goes and if the siren doesn't work, it doesn't make a
noise. So, Tom estimates it will take him about
two to three hours in the evening, from five to eight, to test the 200 or 250
sirens, that are going to be given to him, every day by the siren manufacturer.
The siren manufacturer offers Tom the following deal.
If Tom will test those sirens every day from 5 to 8 in the evening in the way that
I've just described, then the siren testing company will provide Tom with all
of the equipment, it will provide him with compensation for his labor.
It will provide him with full compensation for any unpleasantness that he experiences
from testing the sirens. And on top of everything, the company will
pay Tom $500 in pure profit. And so Tom thinks to himself, this is a
wonderful opportunity. He can take Rachel's alcove on the side of
the house. And turn it into a siren testing
laboratory. He'll set up the equipment that the siren
testing company brings him, and every day from five to eight in the evening, he'll
connect his battery powered tester to the sirens and see which sirens go and which
sirens don't. And for having done this, he'll realize a
pure profit of $500. So, as you can see in the slide,
Jefferson's quiver of property rights is worth $1,000 if it does not include the
arrow that allows him to test sirens in Rachel's alcove.
On the other hand, if Tom can get the property right to test sirens in Rachel's
alcove, then his quiver of property rights will be worth $500 more than it had been
before, because the value to Tom of the property right that allows him to test
those sirens in Rachel's alcove is $500. But of course when Tom tests those sires
from 5 to 8 in the evening, he makes a great deal of noise and let's say that the
noise wafts next door to Hamilton's house, and Hamilton and his family find their
dinner hour from 5 to 8 every evening interrupted by hundreds of noises
emanating from Jefferson's house. And of course, this makes it much more
difficult, much less pleasant to find quiet enjoyment in Hamilton's house.
And let's suppose that Hamilton values the loss of quiet enjoyment that he
experiences whenever Jefferson tests those sirens at $200, and that means the
following. As we saw, the value to Hamilton of his
entire quiver of property rights not including a property right having to do
with the testing of sirens in Rachel's alcove was $1200.
Those were the property rights that Hamilton had before Jefferson asserted the
right to test the sirens. But if the sirens are run and, or tested,
and Hamilton does not have the right to stop Jefferson from doing so, his house
will simply be less pleasant for him and his family to live in, and the value of
those very same property rights, the ones he had before the sirens were tested and
were then worth $1200, the value of that quiver of property rights will be, be
reduced, in Hamilton's eyes, to $1200. In a word testing of the sirens is worth
$500 to Jefferson, but if he does test the sirens, he'll impose a $200 cost on
Hamilton in the form of denying Hamilton the quiet enjoyment of his home between
five and eight on weekday evenings. So, we have a dispute.
Can Tom and Alex work it out? Well, maybe they can, they're neighbors
after all. It's easy for them to get in touch with
one another. They know one another well, and so they
begin to think about working it out. And so Alex, who's the aggrieved party it
looks like, walks across the way and knocks on Tom's door.
And says, Tom, about those sirens, perhaps we can come to a deal.
I'd really be grateful if you'd stop testing those sirens, because in fact it
really does disturb our dinner hour, and things have always been so quiet we've
come to enjoy it greatly, so, would you please stop testing the sirens?
And Tom says, well Alex I'm very sorry about the disturbance to your dinner hour,
but I'm just trying to make a living and I have an opportunity to use my house.
Rachel's alcove is, after all, in my house, to use my house to earn $500 in
undertaking what would otherwise be a perfectly legal activity.
So Alex says, now perhaps becoming a little annoyed, Alex says Tom, I was here
first. You've disturbed the situation that was
here before. You've disturbed the status quo.
I think I have a right to expect that the status quo will continue, and therefore I
think that you cannot test those sirens without my permission, and therefore I ask
you to stop. And Tom, now becoming somewhat irritated
himself says, Alex, are you presuming to tell me what I could do with my own house?
It is my own house. There's no law against testing sirens.'
Tom happens to know that their town has no zoning ordinances.
And so, there's no reason for you to tell me that I can't use my house in order to
test sirens in this way, and I won't let you stand in the way of my providing for
my family. Well, it's possible that if the argument
goes on for long enough, either Tom or Alex will give in to the other one.
Alex might say, okay, Tom, you can test your damn sirens, and we'll just suffer
the loss. Or Tom might say, okay, Alex, I'll put the
sirens away and swallow the loss of this profit-making opportunity.
But if they do come to such a deal, note that they will have informally defined a
property right between them. If Alex forebears from complaining, if he
tells Tom to just go ahead, and Alex will suffer, then Alex has effectively granted
Tom a property right to test the sirens in Rachel's alcove.
But if Tom, to keep the peace, agrees not to test the sirens, then he will
implicitly and informally have given Alex a property right in Rachel's alcove in
Tom's house, and Alex will use that property right to keep Tom from testing
the sirens. But this is America, and people are not
likely to come to an easy resolution of disputes like this and we're likely to see
Tom and Alex next when they go to court. What is it that they're arguing about when
the go to court? Well, indeed, we've already seen the
answer. They're arguing over, about, or over, the
ownership of a particular arrow that's associated with the object of Tom's house,
and in particular the part of Tom's house we're calling Rachel's alcove.
They're arguing about which of the two of them owns that arrow.
If Tom owns the arrow, then he will be able to test the sirens in his own house
without compensating Alex for the costs that Tom's testing of the sirens imposes
upon Alex. But if Alex wins the case then he the
property rights to test sirens in Rachel's alcove, and he will use that property
right negatively. He won't enter Tom's house to test the
sirens himself, but he will control the use of Rachel's alcove by not allowing Tom
to use Rachel's alcove to test sirens. And as we've seen if they can't agree
informally, then they will go to court. And again, the dispute will be resolved by
a judge. And we can imagine that in resolving the
dispute by telling either Tom that he can continue to test the sirens without
winning Alex's consent or compensating him, or if he tells Alex that he has the
property right and can prevent Tom from testing those sirens without Alex's
permission. We imagine that in deciding the case the
judge goes back in her chambers, takes one of those naked arrows, wraps a tag on it
that says the bearer of this arrow has the right to test sirens in Rachel's alcove in
the evenings from 5 to 8 p.m. So it looks like there's a lot at stake in
this particular dispute and so let's assume that Tom and Alex have both done
their best to secure the best legal talent possible.
So Tom and his attorneys and Alex and his attorneys Meet one another next as they
enter the courtroom to argue the case of Hamilton verses Jefferson, where Hamilton
is arguing to the judge that she ought to throw the weight of the law behind his
claim to be able to stop Tom from testing those sirens.
In the United States trials are public, and very frequently in a public courtroom,
you can see the public. They sit on benches in the gallery and
they watch the cases. Years ago, when I was a law student, I was
sent to watch a series of criminal dispositions at the local Court of Common
Pleas in Philadelphia, and I sat there every afternoon for a full week.
In the midst of a group of elderly people from a northern suburb of Philadelphia who
came down to the courtroom every afternoon to watch, as one of them put it to me, the
human drama which was much better then what you could see on the soap operas at
home in television. As I discovered over the course of the
week, some of those elderly people were quite knowledgeable.
They knew the answers to the legal questions that were being litigated.
Certainly they knew them better than I did because they'd been sitting and watching
for many years and they had a pretty good sense of what kinds of cases were
litigated, what the precedence were that help the judges to decide those cases, and
what the likely outcomes of the cases would be.
So let's imagine that there's an elderly fellow sitting in the back of the
courtroom at the moment that Tom and Alex enter the courtroom to litigate their
dispute, each with their dream team of lawyers.
And let's call this elderly gentleman Ron, and let's assume that Ron, sitting in the
back of, of the courtroom, whispers a disturbing sentence as Alex and Tom and
their attorneys pass by. Boys, he says, it doesn't matter who wins
this case. Alex turns to look at Ron.
Tom turns to look at Ron. The attorneys turn to look at Ron and they
ask him to repeat what he said. And Ron said, it doesn't matter who wins
the case. Well at this, the attorneys shuffle their
clients hurriedly away from Ron. They don't want their clients to hear what
Ron is saying, because if Ron is right and it doesn't matter who wins the case then
nobody needs the lawyers, do they? It doesn't really matter which side wins
the case and so the question before us is, does it matter who wins the case We'll
find that out next.
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