Property Rules and Liability Rules
We had an unusually stimulating law lunch today. Professor Stake said he thought the Calabresi-Melamed idea of property vs. liability rules was useless, and Prof. Richards sympathized with that view. Let me rethink the idea here.
Let’s make the action the unit of analysis: Tom’s hunting in Bagley Wood. We can imagine four legal rules:
1. Tom can hunt there if John agrees. Perhaps Tom will pay John to get that agreement. A property rule.
2. Tom can hunt there. Perhaps John will pay him not to, though. A property rule.
3. Tom can hunt there if he pays $100, even if John wants to stop him. The payment might be paid to John, or to the government. A liability rule.
4. Tom can hunt there unless John objects and John pays $100. The payment might be paid to Tom, or to the government. A liability rule– the Spur case.
We say that Tom owns the right in cases 2 and 4, and John does in 1 and 3.
Case 1 is like John owning Bagley Wood. Ownership *of the Wood* usually would mean that John could exclude not only Tom, but anybody else. More strictly speaking, though, ownership of the right is just John being able to exclude Tom. That would happen if John were Tom’s employer, for example, and Tom wanted to hunt in a public wood during work hours.
Ownership can get very medieval and tricky. We could have the following situation, for example.
Tom can hunt in Bagley Wood if John agrees. Martin can hunt there freely even if John disagrees. Luke can hunt there if he pays $100 to John. George can hunt there unless John objects and pays him $100.
That tangled situation could arise if John and Martin jointly own Bagley Wood, John and Luke have contracted that Luke will not hunt unless he pays liquidated damages of $100, and John and George have contracted that John has the option to block George’s hunting if he pays George $100.
But this view is incomplete, I realize. I defined the action as Tom’s hunting in Bagley Wood. But what I really meant was Tom’s having the option to hunt in Bagley Wood. If we really mean “Tom hunting in Bagley Wood”, then there are more possibilities.
1′. Tom *must* hunt there if John wants him to. Perhaps Tom will pay John to be able to do something else instead. A property rule.
2′. No new rule.
3′. No new rule.
4′. Tom must hunt there if John pays $100. The payment might be paid to Tom, or to the government. A liability rule.
I should go work on another paper now, but this might be worth returning to.
January 25th, 2007 at 3:13 pm
I hope I can respond before my credentials are revoked by the property prof. guild. To clarify my position as briefly as possible, the Calabresi terminology was obviously of critical importance in identifying the unappreciated possibilty of the result obtained in Spur Industries. My complaint is that the terms “property rule” and “liability rule” are often used nowadays when “injunction” and “damages” would be equally descriptive and easier to comprehend.