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UW-Madison ECON 522 - Logistics

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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 82This week:No office hoursNo lecture ThursdayNext week:Office hours Monday 1:30-3:30, and usual ones on WednesdayHW #1 due Tuesday at 11 a.m. SHARPWeek after next:Office hours Monday 1:30-3:30 (instead of Wednesday)Midterm #1 Tuesday, in classLogistics3Intellectual propertyWhat it is, what problem it solves, what other problems it createsTypes of public ownership, when to privatize a resourceBoundary maintenance costs vs cost of congestion/overuseFugitive propertyFirst possession versus tied ownership rulesProving property rights, and ways to lose themRestraints on alienationHow much owners can restrict their heirsPrivate necessityInalienabilityLast week…4More ways in which property rights are limitedUnbundlingEminent domain/takingsRegulationMore on remedies when rights are violatedToday, we wrap up property law…5Property: “a bundle of rights”Can you unbundle them?Separate them, sell some and keep othersUsually, noProhibition on perpetuitiesI can’t separate the right to own/live on my land from the right to sell it or turn it into a golf courseBut in some instances, yes…Unbundling6Land ownership consisted of three separable pieces (“estates”)Surface estateSupport estateMineral estatePennsylvania and coal7Free unbundling of property rights generally not allowed under common or civil lawUnbundling8Free unbundling of property rights generally not allowed under common or civil lawEfficiency: allow unbundling when it increases the value of the property?But if re-bundling the rights is costly, maybe notUnbundling  uncertainty about rights  harder to tradeUnbundling9More on remedies10Maximum liberty: owner can do whatever he/she wants, as long as it doesn’t interfere with another’s propertyWhen it does interfere, externality, or nuisanceAffects small number: private externality, or private badTransaction costs low  injunctions preferableAffects large number: public externality, or public badTransaction costs high  damages preferableRemedies (review)11Compensatory Damagesintended to “make the victim whole”compensate for actual harm donemake victim as well off as beforeCan be…Temporary – compensate for harms that have already occurredPermanent – also cover present value of anticipated future harmTypes of damages12Temporary damagesRequire victim to keep returning to court if harm continuesCreate an incentive to reduce harm in the futurePermanent damagesOne-time, permanent fixNo incentive to reduce harm as technology makes it easierTemporary versus permanent damages13If a nuisance affects a small number of people (private nuisance), an injunction is more efficientIf a nuisance affects a large number of people (public nuisance), damages are more efficientIf damages are easy to measure and innovation occurs rapidly, temporary damages are more efficientIf damages are difficult/costly to measure and innovation occurs slowly, permanent damages are more efficientWhat’s done in practice for public nuisances?temporary damages and injunction against future harmbut…Efficient nuisance remedies14Atlantic owned large cement plant near Albanydirt, smoke, vibrationneighbors suedplant was found to be a nuisance, court awarded damagesneighbors appealed, requesting an injunctionCourt ruled that…yes, this was a valid nuisance caseand yes, nuisances are generally remedied with injunctionsbut harm of closing the plant was so much bigger than level of damage done that court would not issue an injunctionordered permanent damages, paid “as servitude to the land”Boomer v Atlantic Cement Co(NY Ct of Appeals, 1970)15Atlantic owned large cement plant near Albanydirt, smoke, vibrationneighbors suedplant was found to be a nuisance, court awarded damagesneighbors appealed, requesting an injunctionCourt ruled that…yes, this was a valid nuisance caseand yes, nuisances are generally remedied with injunctionsbut harm of closing the plant was so much bigger than level of damage done that court would not issue an injunctionordered permanent damages, paid “as servitude to the land”Boomer v Atlantic Cement Co(NY Ct of Appeals, 1970)16One role of government: provide public goodsWhen public goods are privately provided  undersupplyDefense, 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 domainRight to seize private property when the owner doesn’t want to sellThis type of seizure also called a takingTakings17U.S. Constitution, Fifth Amendment: “…nor shall private property be taken for public use, without just compensation.”Government can only seize private property for public useAnd only with just compensationConsistently interpreted to mean fair market value – what the owner would likely have been able to sell the property forTakings18Why allow takings?Takings19Why allow takings?Why these limitations?why require compensation?Takings20Why allow takings?Why these limitations?why require compensation?Takings$3 MM $1 MM$9 MM$10 MM21Why allow takings?Why these limitations?why require compensation?why only for public use?Takings22Why 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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UW-Madison ECON 522 - Logistics

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