Econ 522 Economics of LawLogisticsToday: more applications of property lawSlide 3OrganizationsMultiple forms of public ownershipThird form of public ownership: political control/regulationSlide 8Slide 8Fugitive propertyTwo principles for establishing ownershipFirst Possession versus Tied OwnershipSlide 13This brings us to the following tradeoff:A nice historical example: the Homestead Act of 1862Slide 16Another cool example of fugitive propertyWhen should resources become privately owned?Slide 19What can be done to prove ownership of something?Slide 21Can a thief give good title?Slide 23How might you give up (or lose) property rights?Slide 25Slide 26Slide 26One thing owners can do: determine who inherits their property after they dieSlide 29Slide 30Slide 31Slide 31Private NecessitySlide 34InalienabilityThat’s all for todayEcon 522Economics of LawDan QuintFall 2009Lecture 72No office hours next Wed Sept 30No lecture next Thurs Oct 1Extra OH Mon afternoon Oct 5, 1:30-3:30 p.m.HW1 due Tues Oct 6, 11:00 a.m. SHARPExtra OH Mon afternoon Oct 12, 1:30-3:30 p.m.Midterm 1 Tues Oct 13, in classLogistics3Today: more applications of property law4More on: what can be privately owned?5Most organizations are not owned by anyonechurches, clubs, cooperatives, charities, etc.But many corporations are ownedcan be bought and sold like propertyGeneral principle:Organizations whose primary purpose is to earn profits should be ownedOrganizations whose primary purpose is something else should notOwnership leads to a principal-agent problemOrganizations6Open 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 MoscowPolitical Control/RegulationMultiple forms of public ownership7Dividing 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/regulation8In fact, the common pastures in the mountains of Iceland have not been overused and destroyed, because the villages have effective systems of governance.They have adopted rules to protect and preserve the common pasture. The sheep are grazed in common pasture in the mountains during the summer and then returned to individual farms in the valleys during the winter.The total number of sheep allowed in the mountain pasture during the summer is adjusted to its carrying capacity.Each member of the village receives a share of the total in proportion to the amount of farmland where he or she raises hay to feed the sheep in the winter.Third form of public ownership: political control/regulation9How are property rights established/verified?10Hammonds v. Central Kentucky Natural Gas Co.Central Kentucky leased tracts of land above natural gas depositsBut geological dome lay partly under Hammonds’ landHammonds sued, claiming some of the gas they were extracting was his(Anybody see “There Will Be Blood”?)Fugitive property11First Possessionfugitive property belongs to nobody until someone extracts it, establishing ownershipCentral Kentucky would own all the gas, since they were first to actually possess itTied Ownershipownership of fugitive property is tied to something else which is easier to establish – in this case, surface of the landHammonds would own some of the gas, since it was located under his landprinciple of accession – a new thing is owned by the owner of the proximate or prominent propertyTwo principles for establishing ownership12First Possessiongenerally simpler to apply – easy to determine who possessed property firstbut, incentive to invest too much to early in order to establish ownershipFirst Possession versus Tied Ownership13First Possessiongenerally simpler to apply – easy to determine who possessed property firstbut, incentive to invest too much to early in order to establish ownershipTied Ownershipencourages efficient use of the resource (no need to extract quickly)but, difficulty of establishing and verifying ownership rightsFirst Possession versus Tied Ownership14Rules that link ownership to possession have theadvantage of being easy to administer,and the disadvantage of providing incentives foruneconomic investment in possessory acts.Rules that allow ownership without possession havethe advantage of avoiding preemptive investmentand the disadvantage of being costly to administer.This brings us to the following tradeoff:15Meant to encourage settlement of the Western U.S.Citizens could acquire 160 acres of land for free, providedhead of a family or 21 years old“for the purpose of actual cultivation, and not… for the use or benefit of someone else”had to live on the claim for 6 months and make “suitable” improvementsBasically a first possession rule for land – by living on the land, you gained ownership of itFriedman: caused people to spend inefficiently much to gain ownership of the landA nice historical example: the Homestead Act of 186216Meant to encourage settlement of the Western U.S.Citizens could acquire 160 acres of land for free, providedhead of a family or 21 years old“for the purpose of actual cultivation, and not… for the use or benefit of someone else”had to live on the claim for 6 months and make “suitable” improvementsBasically a first possession rule for land – by living on the land, you gained ownership of itFriedman: caused people to spend inefficiently much to gain ownership of the landA nice historical example: the Homestead Act of 186217Stack Island in the Mississippi belonged to someone.Over a period of many years the river’s current eroded the upstream end of Stack Island and deposited sediment at the downstream end, with the result that Stack Island gradually drifted downstream.Some distance below Stack Island the west bank of the river belonged to someone else, along with all
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