PROPERTY SEEMS SUCH a simple idea: Things belong to people, and the owner of each thing gets to control how it is used. Like many sim- ple things it becomes more and more complicated the longer you think about it.
In chapter 5 we looked at some of the complications and saw how, in principle, one might determine an efficient set of property rights. In this chapter we extend the argument in two directions: What an owner owns, and why some things, property, are owned and some, commons, are unowned.
Bundling Rights: What an Owner Owns
The idea of a thing belonging to a person is fairly clear when the thing is an automobile or a pair of pants. It is less clear when the thing is a piece of land. What rights does my ownership give me? Almost certainly I can farm the land, or build on it, or keep off trespassers. But can I prevent airplanes from flying over it, miners from tunneling under it, neighbors from making loud noises near it? If it is my land, does that mean I can forbid radio stations from broadcasting without my permission, on the theory that if I can pick up the signal, the radio waves must be trespassing on my property?
What I own is not a thing called land but a bundle of rights. Some rights almost always go in the bundle associated with a particular piece of land, such as the right to walk on it and forbid others from doing so. Other rights associated with the land, such as the right to forbid trespass- ers at various distances above or below it and the right to have the surface stay put instead of sliding into someone else’s coal mine, may or may not be found in the same bundle.
Chapters 4 and 5 sketched out the economic approach to designing efficient legal rules. It starts with two questions: To whom is a particular right most valuable, and, if we do not know that for certain, what initial
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definition of rights makes it easiest to move the rights to the person to whom they turn out to be most valuable?
When constructing bundles of rights the first question becomes “Which rights belong together?” If I own the right to farm the land, the right to walk on the land is worth more to me than to anyone else, so the two belong in the same bundle. Since it is hard to grow crops if other people are free to tramp through your fields, the right to exclude trespass- ers probably belongs in the bundle as well. But that depends in part on how the land is going to be used. If it is timber instead of corn, the argu- ment is not so clear. In some legal systems ownership of land implies only a very limited right to exclude trespassers.
The right to forbid radio waves from passing over my property, on the other hand, is of very little use to me. If every property owner had that right, setting up a radio station would require unanimous consent from every owner within range of the broadcast, making a transfer of the right from the owners to the person to whom it is of most value a prohibitively difficult transaction. It makes more sense to have legal rules in which the right to broadcast on a particular frequency is entirely separate from the ownership of the land over which the broadcast passes. Similar argu- ments suggest that the right to forbid airliners from trespassing a mile above my fields would be of little value to me, and moving it to those to whom it was of most value would be hard. That right, too, is left out of the bundle.
A more difficult problem arises when a single right is associated with two different, typically adjacent, pieces of land. The right to control sound waves crossing into my property, to forbid you from playing loud music or setting off firecrackers close to my property line at three in the morning, for example, is valuable to me. But the right to control sound waves crossing out of your property, to make noises that I can hear from my side of the property line, is valuable to you.
The same problem arises when two properties are adjacent vertically rather than horizontally. In Pennsylvania, a state constructed largely out of coal, rights to land are made up of three separable estates: the sur- face estate, the mineral estate, and the support estate. If I own the surface estate and the support estate and you own the mineral estate, you are free to mine the coal under my land but must leave enough of it to support the surface. If my house falls into your mine, you have violated my rights. If, on the other hand, you own both the mineral estate and the support es- tate, I may own the surface, but I have no legal right to have it supported by anything. The support estate is valuable both to the owner of the sur- face, who wants something under his house to hold it up, and to the miner, who wants to be able to get out all of the coal. So it makes sense
for the law to permit transactions between the owner of the surface and the owner of the mining rights to move the support right to whoever values it most.
The same problem sometimes arises between neighbors who are adja- cent horizontally. If I dig too deep a pit on my side of the property line, your land may start to slide into it. Under English common law, a land- owner has a right to lateral support, meaning that his neighbor has a duty to continue to provide the support that the adjacent land would receive under natural conditions.
Such conflicts are the subject of the common law of nuisance, the area of law that inspired Coase’s work. The analysis of railroads and farmers in chapter 5 was a sketch of how, at least in principle, questions about who owns which rights in the bundle and how they can be enforced would be decided in an efficient legal system. We will return to the subject again in chapter 14.
In chapter 5, after discussing property and liability rules as alternative approaches to enforcing property rights, I briefly mentioned another al- ternative, controlling property by majority vote. That turns out to be a common, and arguably efficient, rule for controlling the use of fugitive mineral resources: oil and gas.
Consider a group of landowners sitting on top of a large pool of oil. If I drill a well on my property and start pumping, all the oil will eventu- ally belong to me, since as oil flows out from under my land it is replaced by oil flowing in from under yours. (Geologists, including the one I am married to, will, I hope, forgive my oversimplification of the geologi- cal facts.) My well imposes an externality on you in the form of lost oil; your well, if you drill it, will impose a similar externality on me. It is in each person’s interest to drill too many wells and pump them too fast, making all of us worse off. We are in a prisoner’s dilemma with multiple prisoners.
One solution is unitization. In some states a sufficiently large majority of the landowners over such a pool—frequently two-thirds are re- quired—can vote to unitize the pool. Doing so converts the oil from the private property of whoever owns the land immediately above it to the joint property of all the landowners. The landowners as a group then agree on how the oil is to be extracted and share the resulting income. Conflicts of interest among the landowners are reduced by legal rules requiring equal treatment; a majority group cannot simply vote to pump all the oil and give the income to its members. Similar rules forbid a ma- jority group of stockholders in a corporation from transferring the firm’s assets to themselves at the expense of the minority stockholders.
In all of these cases the relevant legal rules can be thought of as a way of defining and bundling rights so as to achieve the most efficient possible
outcome. Whether that approach explains the rules we have or provides reasons why we should have different rules is less clear. Coase’s conclu- sion was that, in the case of the common law of nuisance, the evidence suggested that judges were at least trying to produce something close to efficient rules.
Property versus Commons
For a noneconomist the first and most obvious question about private property is why we have such a silly institution. Why not forget selfish notions of thine and mine and let everyone use everything whenever he needs it?
There are two reasons why that does not work. The first is that you and I cannot simultaneously drive the same car to different places, nor can I drive my car very far if your previous use has left it with an empty gas tank and a flat tire. We need some way of deciding who gets to use what when, preferably a way that results in the person to whom some- thing is most valuable getting it. Private property and exchange solve that problem, for reasons sketched in chapter 2. If the use of my property is more valuable to you than to me, you will be willing to offer a price that I will be willing to accept.
The second reason is that most of the things we treat as private prop- erty are things that somebody must make, and making things is costly. If making things results in owning them, that gives you a reason to make them. Not only does it provide an incentive, it provides the right incen- tive: You will make something if and only if its value to whoever values it most, either you or the person you plan to sell it to, is at least as great as the cost of making it. That is the efficient rule.
The puzzle for the noneconomist is why anything is private property. The puzzle for the economist is why anything is not. Having found such an elegant solution to the problem of producing and allocating things, why not apply it universally?
If you think the answer is that we should, consider extending intellec- tual property law to cover the English language. Words become private property, each belonging to its first user or his heir or assign. Before speaking a sentence you must first license rights to each word.
There would be some advantages to propertizing language. The owner of a word could prevent the sort of overuse by which words are rendered almost meaningless: “nice,” for example, or “awful.” Perhaps more im- portant, it would provide an incentive for creative neologism. The En- glish language is sadly lacking in gender-neutral pronouns, leaving us with the choice of “he-she-or-it” or misusing “they” to produce such
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ungrammatical barbarisms as “this policy covers the customer even if they drop dead of a heart attack tomorrow.” If the first person to invent and popularize a euphonious and intuitive set of gender-neutral pro- nouns were able to collect license fees thereafter from everyone who used them, perhaps the problem would be solved.
There are advantages to propertizing the language, but also very large disadvantages. The transaction costs associated with writing or speaking, in a world of private words, would be very high. I suspect that they would more than outweigh any advantage due to more rapid linguistic innova- tion. It would be a very quiet world.
The argument is not limited to intellectual property. Consider property rights among primitive peoples. Some have private property in land, some do not. Why?
It is tempting to answer that the ones who do not have private prop- erty in land are too primitive to have thought of the idea. But that cannot be an adequate answer, because some groups have private property in land for only part of the year. They know of the concept and practice it—part time.
A more plausible answer starts with the observation that, since primi- tive people probably know more about their conditions than we do, their legal rules may well be efficient ones for their circumstances. Consider land used part of the year for agriculture and part of the year for hunting large animals across. Private property is very useful for agriculture, since there is little point in planting and weeding if other people are free to do the harvesting and eating. Private property in land being hunted over, on the other hand, means stopping at every border to ask permission to cross, while your quarry vanishes into the distance. The sensible rule is for the animal you are hunting to be private property, belonging to the hunter who first spotted it, while the land you are hunting it over is com- mon property. If hunters depend on the rest of the community to bring them word of game, that rule may be efficiently modified to include a claim by others to a share of the kill.
For a less exotic example of land owned in common, consider the vari- ous sorts of joint tenancy, common tenancy, tenancy by the entirety, and life interest with reversion that law students encounter in studying prop- erty law. All raise the usual problem of common ownership, the risk that each party, in deciding how to use the land, will ignore the interests of the other. Legal doctrines such as the law of waste, which forbids a life tenant from altering property in ways injurious to the interest of the person to whom the property will revert, have evolved as attempts by the common law to deal with that problem.
A more recent example of common property is information on the In- ternet. While some providers choose to charge for information, many
others, myself among them, deliberately give it away to all comers. And the standard procedure for getting e-mail from computer A to computer G through intermediate computers B–F involves no charge by the owners of the intermediate machines to the owners of the machines whose mail they are forwarding.
Charging for information online, although possible, is costly, with the result that porn sites do it and most of the rest of us don’t bother. Instead we rely on indirect ways of getting paid for the information we give away—advertising for commercial sites, the pleasure of spreading our ideas and showing off pictures of ourselves and our children for non- commercial sites. That works because the cost of distributing informa- tion, measured per user, is small enough to be covered by such indirect methods. Charging for forwarding the packets of information into which e–mail dissolves itself when it leaves the host computer would require enormous numbers of tiny charges, currently an unreasonably expensive procedure (although that may be changing). Instead the ground rule for host computers is “I’ll forward your packets if you’ll forward mine.”
There are many examples of firms that routinely give things away. An all-you-can-eat restaurant charges for entry, but once inside additional food is free. Most Internet service providers follow the same policy—a fixed monthly fee for unlimited service. Whether or not we can explain the failure of primitive people to maintain property rights in land by sim- ple ignorance, we cannot explain AOL’s pricing policy that way. A more plausible explanation is that such firms are balancing the inefficiency due to overuse, an additional serving of food that is worth ten cents to you and costs the restaurant twenty cents to produce, against the cost savings from not having to restrict and monitor use.
These examples suggest one reason why private property is sometimes not worth having: the cost of the transactions necessary to move it from one person to another. That is the obvious explanation of why we do not want English words to be private property. A second is the cost and diffi- culty of defining and recognizing boundaries—which brings me to the story of the floating island.
The Floating Island
Stack 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 islands in the section of river east of his
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property. After a very long time one of them was Stack Island. Who owned it?
The resulting law case was settled on grounds of adverse possession: The court, by holding that the owner of the coastal strip had waited too long to assert his rights, avoided having to rule on whether he had any rights to assert. What I like about the case is that it illuminates one of the unstated assumptions of ordinary property law—that boundaries stay where they are put, permitting us to define what we own in an unambigu- ous way. The property rights that came into conflict in that case were defined in a perfectly clear and sensible fashion as long as islands stayed put. In a world where Stack Island was the norm instead of the exception, where the physical boundaries defining property claims shifted around in an unanticipated and ambiguous fashion, defining those boundaries and arbitrating the resulting disputes might be a significant cost of maintain- ing a system of private property.
Consider the following description of land law in the Sudan:
You cannot understand a Nile land case without understanding how the river behaves. As it rises and falls in its annual cycle, fertile land in the riverbed is