October 3, 2012Common law is divided into three areas: 1) property law, 2) contracts, 3) compensation for harmsRecall Cases Discussed EarlierIn many situations, a court may simply clarify what the property rights are, so if the current allocation is inefficient, bargaining can occur to reallocateOnce the winning party has the rights, they can sell the rights to the losing partyMany times all the court does is clarify property rights which can lead to bargainingBargaining costs should be lower once property rights are assignedIf bargaining is not possible, then the court’s decision allocates the property rightsPloof vs. Putnam (1908)Ploof’s family sailing on a lake and a violent and unanticipated storm emerges, so they turn to the nearest island—private island owned by PutnamPutnam not present, but had instructed employees to not allow ppl to stop at his island  employees do not allow Ploof to tie to his dock, so boat goes back out and capsizes, and the family suffers injuries  Ploof sues Putnam for damagesPlaintiff brought suit charging that the defendant (through employees) intentionally untied the boat from the dock when they had a duty to permit the tying up to the dock until the storm had passedDoctrine of NecessityCommon law precedent: when necessary, perhaps bc of inability to control movements that were fully inaugurated, entry onto the land and interference with property are legal that would under ordinary circumstances be considered as a trespassParticularly applicable when human life is in perilCourt says that there are circumstances where typical private property rights are not applicableOctober 10, 2012Calabresi & Melamed“Property Rules, Liability Rules, and Inalienability,” Harvard Law Review, 1972Entitlement: the right to use an asset or resourceAn entitlement can be protected by a “property rule,” a “liability rule,” or by “inalienability”Property RuleSomeone who whishes to remove the entitlement from its holder must obtain it from the holder in a voluntary transaction in which the value of the entitlement is agreed upon by the sellerAsset cannot be transferred except through voluntary processes (i.e. bargaining)A private property rightLiability Rule & InalienabilityLiability rule: an entitlement can be taken or destroyed by someone willing to pay (after the taking) an objectively determined valueEven if you are allowed to use the private property and cause damage, you have to pay for the damageInalienability: transfer is no permitted at all, even between a willing buyer and a willing selleri.e. historic siteEven if you own this land, you cannot use it for “xyz” purpose, and cannot sell it to someone else to use it for “xyz” purposeThere is nothing in the Doctrine of Necessity that specifies what happens if someone enters someone else’s property and does damage  can be problematicCoase’s Argument (Sturges v. Bridgman, 1879)“It was of course the view of the judges that they were affecting the working of the economic system—and in a desirable direction…The judges’ view that they were settling how the land was to be used would be true only in the case in which the costs of carrying out the necessary market transactions exceeded the gains which might be achieved by any rearrangement of rights”Best Cost Avoider PrincipleIf the costs of bargaining to reallocate rights exceed the efficiency benefits of reallocation through bargaining:The least expensive course of action may be to suffer the consequences (the cost of reallocating exceed the benefits), unless rights can be redefined, either to facilitate bargaining, or failing that, to approximate the efficient outcomeJudges want to rule in a way that leads to the lowest costs/damagesGeneral Rules or Case-by-Case?If best-cost-avoider principle applied case-by-case:Create uncertainty about property rightsReduces the chance for bargainingGeneral rule (i.e. Doctrine of Necessity)Applied only when transactions costs appear to prevent bargaining and failure to reallocate involves very high costsCoase prefers this way bc ppl can know or at least anticipate what the rules areCreates conducive environment to encourage bargaining = goodProblems with Doctrine of NecessityWeakens incentives to bargain (encourages trespass and disputes)Even when bargaining is not possible, encourages trespass where property owner’s costs exceed benefits to trespasserTo offset these incentives:Punish trespass when bargaining is possibleMake trespasser pay damages even when the doctrine is applied (liability rule)Vincent v. Lake Eire Transport Co. (1910)Captain stays tied to dock even after contract terms are over because of severe stormCaptain making decisions repeatedly to stay ties to dock (damaging the dock by doing so)  if did not have to pay, the damage would be an externalityVincent (dock owner) wanted compensation for damages to dockJury awarded damages to dock ownerDefendant appealed, arguing that under the doctrine of necessity: the damages arose under circumstances that could not be avoided and which were beyond the control of the defendantAppeals court agreed that the doctrine of necessity applied, but also found that the damages were not simply due to accident beyond the control of the defendantLiability rule situation bc damages must be repaidLiability rule mans that damages-doers need to take into account the consequences of all of their actions  efficient incentivesDissenting OpinionOne judge argued that as long as the ship was lawfully there when the storm broke and had no reasonable option, then the result was an unavoidable accidentContinuous NuisanceChronic continuous invasion of another person’s propertyOne person’s enjoyment of a resource is disturbed on a continuing basis by another’s noise, vibration, or pollutionNuisances are not the same as eternalityNuisance can be an externalityNuisance can also be when one party is aware of the damages they are causing, and property rights are clearExternality: property rights are not clearRemedies for Continuous Nuisances by the DefendantApply when the plaintiff wins, solutions imposed on defendantProperty Rule:1) Temporary injunction: orders defendant to temporarily stop doing whatever is generating the nuisanceAllowed to start up again if the plaintiff agreesDefendant must convince plaintiff to allow him to start againDefendant usually bargains with plaintiffLiability Rules:2) Temporary damages: defendant must pay the