Econ 522 Economics of LawLogisticsDiscussion questionWe’ll wrap up property law with two ways the government limits property rightsSlide 4TakingsSlide 7Slide 8Slide 9Slide 10Slide 11Slide 12Poletown Neighborhood Council v DetroitMore recent case: Kelo v. City of New London (2005 US Supreme Court)Recent example of eminent domainSlide 15Multiple forms of public ownershipThird form of public ownership: political control/regulationSlide 19Similar to how Iceland maintains fishing stockRegulationRegulation: Pennsylvania Coal v. MahonSlide 23Slide 24Slide 25Blume and Rubinfeld, “Compensation for Takings: An Economic Analysis”Slide 27ZoningSlide 29Slide 30Property law: the big-picture questionSlide 31Looking backSo far, we haven’t worried about the details of tradeTiming of transactionsLots of transactions are like thisThis is what contracts are forExample: the agency (trust) game(One solution: reputation)Another solution: legally binding promisesContract: a legally binding promiseWhat types of promises should be enforced by the law?Slide 42The bargain theory of contractsWhat is consideration?Slide 46The bargain theory does not distinguish between fair and unfair bargainsUnder the bargain theory, what is the remedy?Problems with the bargain theorySlide 50Slide 50What promises should be enforced?Slide 53Slide 54So now we know…InformationSlide 57Slide 58Next questionEcon 522Economics of LawDan QuintSpring 2014Lecture 102Second homework due ThursdayFirst midterm next Monday (March 3)covers through the end of property law (today’s lecture)practice problems on website, along with answers to oneLogistics3Should record labels sue music downloaders?Discussion question44Government can tell you how you can or can’t use your propertyRegulationThe government can take your property“Eminent domain”We’ll wrap up property law with two ways the government limits property rights55Eminent Domain66One 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 takingTakings77U.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 forTakings88Why allow takings?Takings99Why allow takings?Why these limitations?why require compensation?Takings1010Why allow takings?Why these limitations?why require compensation?Takings$3 MM $1 MM$9 MM$10 MM1111Why allow takings?Why these limitations?why require compensation?why only for public use?Takings1212Why 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 voluntary negotiationsTakings13131981: GM was threatening to close Detroit plantWould cost city 6,000 jobs, millions in tax revenueCity used eminent domain to condemn entire neighborhood1,000 homeowners and 100 businesses forced to sellland then used for upgraded plant for GMcity claimed employment and tax revenues were public goods, which justified use of eminent domainMich Sup Ct: “Alleviating unemployment and revitalizing the economic base of the community” valid public purposes; “the benefit to a private interest is merely incidental”Overturned in 2004 ruling (Wayne v Hathcock)Poletown Neighborhood Council v Detroit1414Posner (Economic Analysis of Law) describes:…Pfizer had decided to build a large research facility next to a 90-acre stretch of downtown and waterfront property in New London. The city hoped that Pfizer’s presence would attract other businesses to the neighborhood.The plaintiffs owned residential properties located on portions of the 90-acre tract…It might have been impossible to develop those areas… had the areas remained spotted with houses.The city… solved the problem by condemning the houses.It said, “the area was sufficiently distressed to justify a program of economic rejuvenation.”Attorney arguing case:“If jobs and taxes can be a justification for taking someone’shome or business, then no property in America is safe.”More recent case: Kelo v. City of New London (2005 US Supreme Court)1515Bruce Ratner owned the Nets from 2004-2011Bought for $300 MM, sold for less (80% for $200 MM)This “loss” held up by David Stern as evidence NBA owners were losing money, players needed to make concessionsRecent Malcolm Gladwell article on GrantlandRatner didn’t want the Nets – he wanted development rights to a 22-acre site in BrooklynBuying it all up would be difficultSeizure a la Kelo would be possible, but politically unpopularIf plans included a basketball stadium, becomes clear-cut case for eminent domainEven if Ratner took a “loss” on the team, he got what he wanted out of the dealRecent exampleof eminent domain1616Regulation1717Open AccessAnyone free to use the resourceLeads to overutilization (Tragedy of the Commons)Example: oyster bedsUnanimous ConsentOpposite of open access – multiple owners must all agree to any use of the resourceLeads to underutilizationExample: empty storefronts in post-Communist Moscow“Anti-commons” caused by existing intellectual propertyPolitical Control/RegulationMultiple forms of public ownership1818Dividing the mountain pasture among individual owners would require fencing it, which is prohibitively expensive.Instead, the highland pasture is held in common, with each village owning different pastures that are separated by natural features such as lakes and mountain peaks.If each person in the village could place as many sheep as he or she wanted in the common pasture, the meadows might be destroyed and eroded by overuse.Third form of public ownership: political control/regulation1919In fact, the common
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