Econ 522 Economics of LawLogisticsLast week…Today, we wrap up property law…UnbundlingPennsylvania and coalSlide 7Slide 8Slide 8Remedies (review)Types of damagesTemporary versus permanent damagesEfficient nuisance remediesBoomer v Atlantic Cement Co (NY Ct of Appeals, 1970)Slide 15TakingsSlide 17Slide 18Slide 19Slide 20Slide 21Slide 22Poletown Neighborhood Council v DetroitSlide 24RegulationRegulation: Pennsylvania Coal v. MahonSlide 27Slide 28Slide 29Blume and Rubinfeld, “Compensation for Takings: An Economic Analysis”Slide 31Slide 32More on regulationSlide 34Slide 35Slide 35Recapping property lawSlide 38Slide 39Slide 40Property law: the big-picture questionEcon 522Economics of LawDan QuintFall 2009Lecture 82This week:No office hoursNo lecture ThursdayNext week:Office hours Monday 1:30-3:30, and usual ones on WednesdayHW #1 due Tuesday at 11 a.m. SHARPWeek after next:Office hours Monday 1:30-3:30 (instead of Wednesday)Midterm #1 Tuesday, in classLogistics3Intellectual propertyWhat it is, what problem it solves, what other problems it createsTypes of public ownership, when to privatize a resourceBoundary maintenance costs vs cost of congestion/overuseFugitive propertyFirst possession versus tied ownership rulesProving property rights, and ways to lose themRestraints on alienationHow much owners can restrict their heirsPrivate necessityInalienabilityLast week…4More ways in which property rights are limitedUnbundlingEminent domain/takingsRegulationMore on remedies when rights are violatedToday, we wrap up property law…5Property: “a bundle of rights”Can you unbundle them?Separate them, sell some and keep othersUsually, noProhibition on perpetuitiesI can’t separate the right to own/live on my land from the right to sell it or turn it into a golf courseBut in some instances, yes…Unbundling6Land ownership consisted of three separable pieces (“estates”)Surface estateSupport estateMineral estatePennsylvania and coal7Free unbundling of property rights generally not allowed under common or civil lawUnbundling8Free unbundling of property rights generally not allowed under common or civil lawEfficiency: allow unbundling when it increases the value of the property?But if re-bundling the rights is costly, maybe notUnbundling uncertainty about rights harder to tradeUnbundling9More on remedies10Maximum liberty: owner can do whatever he/she wants, as long as it doesn’t interfere with another’s propertyWhen it does interfere, externality, or nuisanceAffects small number: private externality, or private badTransaction costs low injunctions preferableAffects large number: public externality, or public badTransaction costs high damages preferableRemedies (review)11Compensatory Damagesintended to “make the victim whole”compensate for actual harm donemake victim as well off as beforeCan be…Temporary – compensate for harms that have already occurredPermanent – also cover present value of anticipated future harmTypes of damages12Temporary damagesRequire victim to keep returning to court if harm continuesCreate an incentive to reduce harm in the futurePermanent damagesOne-time, permanent fixNo incentive to reduce harm as technology makes it easierTemporary versus permanent damages13If a nuisance affects a small number of people (private nuisance), an injunction is more efficientIf a nuisance affects a large number of people (public nuisance), damages are more efficientIf damages are easy to measure and innovation occurs rapidly, temporary damages are more efficientIf damages are difficult/costly to measure and innovation occurs slowly, permanent damages are more efficientWhat’s done in practice for public nuisances?temporary damages and injunction against future harmbut…Efficient nuisance remedies14Atlantic owned large cement plant near Albanydirt, smoke, vibrationneighbors suedplant was found to be a nuisance, court awarded damagesneighbors appealed, requesting an injunctionCourt ruled that…yes, this was a valid nuisance caseand yes, nuisances are generally remedied with injunctionsbut harm of closing the plant was so much bigger than level of damage done that court would not issue an injunctionordered permanent damages, paid “as servitude to the land”Boomer v Atlantic Cement Co(NY Ct of Appeals, 1970)15Atlantic owned large cement plant near Albanydirt, smoke, vibrationneighbors suedplant was found to be a nuisance, court awarded damagesneighbors appealed, requesting an injunctionCourt ruled that…yes, this was a valid nuisance caseand yes, nuisances are generally remedied with injunctionsbut harm of closing the plant was so much bigger than level of damage done that court would not issue an injunctionordered permanent damages, paid “as servitude to the land”Boomer v Atlantic Cement Co(NY Ct of Appeals, 1970)16One role of government: provide public goodsWhen public goods are privately provided undersupplyDefense, roads and infrastructure, public parks, art, science…To do this, government needs land(which might already belong to someone else)In most countries, government has right of eminent domainRight to seize private property when the owner doesn’t want to sellThis type of seizure also called a takingTakings17U.S. Constitution, Fifth Amendment: “…nor shall private property be taken for public use, without just compensation.”Government can only seize private property for public useAnd only with just compensationConsistently interpreted to mean fair market value – what the owner would likely have been able to sell the property forTakings18Why allow takings?Takings19Why allow takings?Why these limitations?why require compensation?Takings20Why allow takings?Why these limitations?why require compensation?Takings$3 MM $1 MM$9 MM$10 MM21Why allow takings?Why these limitations?why require compensation?why only for public use?Takings22Why allow takings?Why these limitations?why require compensation?why only for public use?The government should only take private property (with compensation) to provide a public good when transaction costs preclude purchasing the necessary property through
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