Lueck 8 Miceli-Property Lato Dissipation from internal capture can be limited by maintaining a homogeneous membership With equal sharing rules, a homogeneous membership maximizes the present value of a common property resource(Lueck 1994, 1995). Once a group chooses an equal sharing rule there is an incentive to maintain homogeneity. With heterogeneous members and equal shares, highly productive individuals will supply too little effort and the less productive will supply too much compared to a homogeneous equilibrium, so dissipation will increase. In effect, equal-sharing rules increase group wealth with homogeneity among group members. This provides an economic rationale for preserving homogeneity by screening potential members, by indoctrination, or by restricting the transfer of memberships There are other potential limits on the capture behavior of individual common property owners that are not considered by the above model. For example, if group members expect to interact over long periods the incentive to overuse the resource may be limited by the desire to maintain a productive relationship. Accordingly, customary rules can evolve that restrict members, for instance, by limiting the size of private herds on a common pasture( Rose 1986, Smith 2000) For common resources that are attached to land such as oil, game, and water, ownership of the land can limit access to the resource. In effect, the group is the set of private landowners whe have access to the common resource. In this case, private contracting to consolidate land holdings is a possible solution to the ownership problem for the attached resource Libecap and Wiggins 1984, Lueck 1989) Another benefit of group ownership, besides internalizing externalities, is risk sharing. Group ownership of land spreads the risk of uncertain events like crop failure, thereby providing a form of insurance(Ellickson, 1993). Group ownership also promotes egalitarianism, or equal sharing of output, which historically has been the motivation for various communal societies( Cosge Miceli, and Murray, 1997). But, as discussed above, these benefits must be weighed against the cost of group ownership in the form of diluted incentives for effort It is difficult to know how important common property regimes are in modern economies Certainly families and other close knit groups routinely use common property rights to govern resources. The lobster gangs of Maine are perhaps the most famous case. a growing sector of the housing market is comprised of so-called common interest communities, like condominiums, cooperatives, and homeowner's associations, in which residents use a quasi- governmental structure for maintaining common areas(e.g, fitness rooms, pools, trails, open further discussion in Section 7. 5. Common property seems to be less typical in businesythe space)and providing certain local public goods(Dwyer and Menell, 1998: 807-887).(See perhaps because group ownership leads to costly transfers of rights that must ultimately be governed by political decision making. It may also be true that large-scale enforcement by the state(i. e, courts, police) has usurped the major advantage of common property. In water law, On the other hand, there are problems when resource rights are tied to land ownership. For example, further parcelization of land can exacerbate the rule of capture as it has done with oil discovered in urban areas. In addition linking rights can create incentives for further parcelization. For instance, under riparian doctrine linking water to land sometimes yields long, narrow"bowling alley"parcels designed to extend water rights to many users Dukeminier and Krier 2002) Smith(2000) finds little support for the risk sharing thesis in the context of the medieval open fields system
Lueck & Miceli – Property Law 10 Dissipation from internal capture can be limited by maintaining a homogeneous membership. With equal sharing rules, a homogeneous membership maximizes the present value of a common property resource (Lueck 1994, 1995). Once a group chooses an equal sharing rule there is an incentive to maintain homogeneity. With heterogeneous members and equal shares, highly productive individuals will supply too little effort and the less productive will supply too much compared to a homogeneous equilibrium, so dissipation will increase. In effect, equal-sharing rules increase group wealth with homogeneity among group members. This provides an economic rationale for preserving homogeneity by screening potential members, by indoctrination, or by restricting the transfer of memberships. There are other potential limits on the capture behavior of individual common property owners that are not considered by the above model. For example, if group members expect to interact over long periods the incentive to overuse the resource may be limited by the desire to maintain a productive relationship. Accordingly, customary rules can evolve that restrict members, for instance, by limiting the size of private herds on a common pasture (Rose 1986, Smith 2000). For common resources that are attached to land such as oil, game, and water, ownership of the land can limit access to the resource. In effect, the group is the set of private landowners who have access to the common resource. In this case, private contracting to consolidate land holdings is a possible solution to the ownership problem for the attached resource (Libecap and Wiggins 1984, Lueck 1989).35 Another benefit of group ownership, besides internalizing externalities, is risk sharing.36 Group ownership of land spreads the risk of uncertain events like crop failure, thereby providing a form of insurance (Ellickson, 1993). Group ownership also promotes egalitarianism, or equal sharing of output, which historically has been the motivation for various communal societies (Cosgel, Miceli, and Murray, 1997). But, as discussed above, these benefits must be weighed against the cost of group ownership in the form of diluted incentives for effort. It is difficult to know how important common property regimes are in modern economies. Certainly families and other ‘close knit’ groups routinely use common property rights to govern resources. The ‘lobster gangs’ of Maine are perhaps the most famous case. A growing sector of the housing market is comprised of so-called ‘common interest communities,’ like condominiums, cooperatives, and homeowner’s associations, in which residents use a quasigovernmental structure for maintaining common areas (e.g., fitness rooms, pools, trails, open space) and providing certain local public goods (Dwyer and Menell, 1998: 807-887). (See the further discussion in Section 7.5.) Common property seems to be less typical in business, perhaps because group ownership leads to costly transfers of rights that must ultimately be governed by political decision making. It may also be true that large-scale enforcement by the state (i.e., courts, police) has usurped the major advantage of common property. In water law, 35 On the other hand, there are problems when resource rights are tied to land ownership. For example, further parcelization of land can exacerbate the rule of capture as it has done with oil discovered in urban areas. In addition, linking rights can create incentives for further parcelization. For instance, under riparian doctrine linking water to land sometimes yields long, narrow "bowling alley" parcels designed to extend water rights to many users (Dukeminier and Krier 2002). 36 Smith (2000) finds little support for the risk sharing thesis in the context of the medieval open fields system
Lueck 8 Micelli-Property Lazo however, riparian water rights and the public trust doctrine(as we show in Section 8.2. 1 below) still contain important elements of a common property regime 2.4. State Property rights A third, and increasingly important, category of property rights are those held by the state. Vast amounts of land, buildings, and capital equipment are owned by governments(local, state and federal). Local governments own schools, road ways, and fleets of police cars. States own universities, administrative buildings, and vast tracts of land, especially in the West, where statehood grants established state trust lands to be managed to finance schools. The federal government owns over one-third of the total land area in the United States, again with a much larger presence in the western states. It owns the Outer Continental Shelf from the shore to the 200-mile international border and thus own billions of dollars worth of oil-gas and other House, federal buildings throughout the country) and billions of dollars of capital equipment e resources. The federal government also has vast holdings of urban real estate(e. g, The White ranging from fighter jets and aircraft carriers to personal computers and desks The specific set of property rights that govern these state assets varies widely and has not been systematically analyzed by economists. All are under the control of some administrative agency, be it the US Army, the state highway department, or the Bureau of Land Management The statutes and regulations and political forces that govern these agencies varies widely and thus lead to a range of outcomes. Many federal lands are managed passively and are thus oper access for many uses, especially for outdoor recreation such as cycling, fishing, hiking, hunting, and rafting. This is true for the bulk of land administered by the bureau of Land Management, the Forest Service, and the Fish and Wildlife Service. Other lands and uses are governed by a combination of price and non-price(lottery, waiting lists)mechanisms, but open to virtually all citizens in principle. Commercially valuable natural resources, such as coal, oil-gas, and timber, the land(Nelson 1995). For example, ski resorts have long term leases to operate on federalor are routinely leased to private firms, who essentially have private rights over certain attributes of lands, and commercial businesses such as hotels similarly tend to have long term agreements to operate in national parks. Moveable property like desks, planes and rifles are governed differently as well. In some cases state assets are assigned to individual users and thus become an almost exclusive usufruct right. It is well known that a soldier's rifle is his rifle and no one else's. As a whole, the range of property rights regimes incorporate aspects of the three major types: private property, common property, and open access. Even so, what seems to be common all of these regimes is a severe limit on transferability of rights, perhaps to limit the moral hazard incentives of agency bureaucrats 3 The total area of the 50 states is 2.27 billion acres and about 654 million acres (nearly 29%)is owned or administered by federal agencies. See Table 1-3, Public Land Statistics 1999(Bureau of Land Management 1999) 38 States tend to own the subsurface estate between the coast and the federal lands which begin from 3-5 miles out 39 The main exception to this is the large literature on marine fisheries where a myriad of administrative regimes define the rights to fish stocks(Munro and Scott 1985) For these assets the typical rhetoric is that open access is good since they belong to all of us, yet no one would make the same claim for an F-18 fighter jet
Lueck & Miceli – Property Law 11 however, riparian water rights and the public trust doctrine (as we show in Section 8.2.1 below) still contain important elements of a common property regime. 2.4. State Property Rights A third, and increasingly important, category of property rights are those held by the state. Vast amounts of land, buildings, and capital equipment are owned by governments (local, state and federal). Local governments own schools, road ways, and fleets of police cars. States own universities, administrative buildings, and vast tracts of land, especially in the West, where statehood grants established state trust lands to be managed to finance schools. The federal government owns over one-third of the total land area in the United States, again with a much larger presence in the western states.37 It owns the Outer Continental Shelf from the shore to the 200-mile international border and thus own billions of dollars worth of oil-gas and other resources.38 The federal government also has vast holdings of urban real estate (e.g., The White House, federal buildings throughout the country) and billions of dollars of capital equipment ranging from fighter jets and aircraft carriers to personal computers and desks. The specific set of property rights that govern these state assets varies widely and has not been systematically analyzed by economists.39 All are under the control of some administrative agency, be it the US Army, the state highway department, or the Bureau of Land Management. The statutes and regulations and political forces that govern these agencies varies widely and thus lead to a range of outcomes. Many federal lands are managed passively and are thus open access for many uses, especially for outdoor recreation such as cycling, fishing, hiking, hunting, and rafting. This is true for the bulk of land administered by the Bureau of Land Management, the Forest Service, and the Fish and Wildlife Service.40 Other lands and uses are governed by a combination of price and non-price (lottery, waiting lists) mechanisms, but open to virtually all citizens in principle. Commercially valuable natural resources, such as coal, oil-gas, and timber, are routinely leased to private firms, who essentially have private rights over certain attributes of the land (Nelson 1995). For example, ski resorts have long term leases to operate on federal lands, and commercial businesses such as hotels similarly tend to have long term agreements to operate in national parks. Moveable property like desks, planes and rifles are governed differently as well. In some cases state assets are assigned to individual users and thus become an almost exclusive usufruct right. It is well known that a soldier’s rifle is ‘his rifle’ and no one else’s. As a whole, the range of property rights regimes incorporate aspects of the three major types: private property, common property, and open access. Even so, what seems to be common to all of these regimes is a severe limit on transferability of rights, perhaps to limit the moral hazard incentives of agency bureaucrats. 37 The total area of the 50 states is 2.27 billion acres and about 654 million acres (nearly 29%) is owned or administered by federal agencies. See Table 1-3, Public Land Statistics 1999 (Bureau of Land Management 1999). 38 States tend to own the subsurface estate between the coast and the federal lands which begin from 3-5 miles out. 39 The main exception to this is the large literature on marine fisheries where a myriad of administrative regimes define the rights to fish stocks (Munro and Scott 1985). 40 For these assets the typical rhetoric is that open access is good since ‘they belong to all of us,’ yet no one would make the same claim for an F-18 fighter jet
Lueck 8 Miceli-Property Lato Given the great variation in property rights, the analysis of state property not only requires detailed knowledge of the asset and the relevant administrative agency but also a workable theory of bureaucracy. The limited applicable literature is found in the analysis on natural resource agencies, especially those governing federal lands and marine fisheries. For instance, an early study by Stroup and Baden(1973)examines the behavior of the Forest Service and its management of national forests. They point out the different incentives faced by Forest Service managers compared to those of private forest owners and how interest groups influence agency behavior. Since that time there has developed a literature that has examined the economic fficiency of public land management. a common conclusion is that federal lands are not particularly well managed, and that these inefficiencies often are coupled with lower environmental quality(e.g, Hyde 1981). More recently, Nelson(1995)notes the underlying an variable system of property rights in federal lands. Studies of the broadcast spectrum are also an example of economic analysis of property rights governed by administrative agencies(e.g Hazlett 1990, 1998, 2004). Property rights to spectrum are, in fact, highly restrictive and generally non-transferable licenses to broadcast using certain technologies. These rights are similar to the rights to many public lands in their restrictions on use and transfer(e.g, federal grazing rights The relevant law for state property has origins in common law(e.g, mining on federal land in first possession rule) but is primarily governed by statutes and regulations, all shaped by bureaucrats, interest groups, and politicians. These legal constraints shape the objective of agencies. For example, managers of state school trust lands in the West are typically mandated to maximize financial returns and are thus the land is managed intensively under a system of leases to private parties for uses ranging from farming to hunting to logging. National forests, however, are governed by federal multiple use statutes which very often limit the ability of managers to generate revenue from forest use. These statutory constraints, in turn, shape the property rights that develop 2.5. Mixed property rights and complex assets Dron property regimes are more complex than the open access, private property, common property, and state property discussions suggest. Real property rights regimes, in fact, are mixtures of these basic types. A rancher's land may seem to be private but this is only a partial description. The right to the grass for grazing is private but the streams running through the property may be open access for fishing or recreation; or the grass may be a lease from a federa agency with mineral rights held by yet another private party. The underlying oil reservoir may be governed by a unitization contract(subject to oversight by a state oil conservation agency) among many neighboring ranchers, essentially mimicking common property. Predator control for coyotes that roam across many ranches may likewise be governed by a common property regime Similar scenarios are found in residential and commercial real estate, and Bailey(1992)found mixture of ownership regimes among aboriginal peoples. The evidence, though far from systematic, suggests a mixture of rights. Because assets are a complex collection of valuable attributes, ownership is also a complex collection of rights( Barzel 1982, 1997, Eggertssonn 1990, Ellickson 1993, Kaplow and Shavell 2004, merrill and Smith 2000, Rose 1998, Stake 1999), comprised of the four fundamental types. One of the more distinctive complexities of Rose(1998, p.96)calls un-enforced attributes of land by the term unpropertied common resources
Lueck & Miceli – Property Law 12 Given the great variation in property rights, the analysis of state property not only requires a detailed knowledge of the asset and the relevant administrative agency but also a workable theory of bureaucracy. The limited applicable literature is found in the analysis on natural resource agencies, especially those governing federal lands and marine fisheries. For instance, an early study by Stroup and Baden (1973) examines the behavior of the Forest Service and its management of national forests. They point out the different incentives faced by Forest Service managers compared to those of private forest owners and how interest groups influence agency behavior. Since that time there has developed a literature that has examined the economic efficiency of public land management. A common conclusion is that federal lands are not particularly well managed, and that these inefficiencies often are coupled with lower environmental quality (e.g., Hyde 1981). More recently, Nelson (1995) notes the underlying and variable system of property rights in federal lands. Studies of the broadcast spectrum are also an example of economic analysis of property rights governed by administrative agencies (e.g., Hazlett 1990, 1998, 2004). Property rights to spectrum are, in fact, highly restrictive and generally non-transferable licenses to broadcast using certain technologies. These rights are similar to the rights to many public lands in their restrictions on use and transfer (e.g., federal grazing rights). The relevant law for state property has origins in common law (e.g., mining on federal land in a first possession rule) but is primarily governed by statutes and regulations, all shaped by bureaucrats, interest groups, and politicians. These legal constraints shape the objective of agencies. For example, managers of state school trust lands in the West are typically mandated to maximize financial returns and are thus the land is managed intensively under a system of leases to private parties for uses ranging from farming to hunting to logging. National forests, however, are governed by federal ‘multiple use’ statutes which very often limit the ability of managers to generate revenue from forest use. These statutory constraints, in turn, shape the property rights that develop. 2.5. Mixed property rights and complex assets Real property regimes are more complex than the open access, private property, common property, and state property discussions suggest. Real property rights regimes, in fact, are mixtures of these basic types. A rancher’s land may seem to be private but this is only a partial description. The right to the grass for grazing is private but the streams running through the property may be open access for fishing or recreation; or the grass may be a lease from a federal agency with mineral rights held by yet another private party. The underlying oil reservoir may be governed by a unitization contract (subject to oversight by a state oil conservation agency) among many neighboring ranchers, essentially mimicking common property. Predator control for coyotes that roam across many ranches may likewise be governed by a common property regime. Similar scenarios are found in residential and commercial real estate, and Bailey (1992) found a mixture of ownership regimes among aboriginal peoples. The evidence, though far from systematic, suggests a mixture of rights. Because assets are a complex collection of valuable attributes, ownership is also a complex collection of rights (Barzel 1982, 1997, Eggertssonn 1990, Ellickson 1993, Kaplow and Shavell 2004, Merrill and Smith 2000, Rose 1998, Stake 1999), comprised of the four fundamental types.41 One of the more distinctive complexities of 41 Rose (1998, p.96) calls un-enforced attributes of land by the term ‘unpropertized common resources’
Lueck Miceli-Property Lato ights - -and one long recognized in law - is the distinction between use rights and transfer ights. The standard fee simple bundle included both the right to possess(use)and the right to transfer but many rights are only for exclusive use(e. g, riparian water rights, many servitudes) Little work has been done to understand the forces that determine the optimal complexity of property rights. This area thus remains an important area for future work. Smith's(2000)study of the common field system of medieval Europe is one of the few to examine the economic logic of a mixed property regime. Smith notes that for crops the land in the typical village was private, but that for grazing the land was common property. He notes how private property for crops provides incentives for investment and husbandry and how a larger scale of land ownership is optimal for grazing(of private herds). Lueck's(1989)study of wildlife law recognizes that wildlife is but one of many valuable attributes of the land for which the dominant property regime is most often governed by ltural use. Ellickson(1993)similarly notes a wide range of mixed regimes, including legal and customary rights. These studies are important in furthering our understanding of the complexity of rights but are lacking a cohesive(and ultimately formalized)framework. The modern principal-agent literature on contracts, especially that on moral hazard, may be a starting point as our discussion of land leases in Section 5 suggests. The major question is to what extent each individual attribute of an asset can be treated as an independent asset whose ownership is independently determined The common law of property can be said to begin with the ad coelum doctrine's mandate that ownership of land includes all attributes in an infinite projection above and below the earths surface. In this system the only ownership question is the size of the surface boundaries. The ad coelum framework ultimately breaks down because various attributes(as the rancher example shows) have different surface projections. Thus the optimal tract size of land for a home may be one acre, but for an oil reservoir it may be ten thousand acres and for an airshed it may be much larger still. The law has long recognized the limits of the ad coelum doctrine and has developed to accommodate the demand of different attributes of land. The law of servitudes and the law of separate estates in water and minerals are clear examples. Modern public administration of environmental resources is a recent application(e.g. Rose 1998). The law of nuisance and The doctrine of private necessity, for example, is an exception to the law of trespass, whicha trespass, the focus of Coase's analysis, has to do with conflicts that ultimately arise between owners of adjacent parcels, which derive from complex assets with various dimensions of u actually allows one to use another's property in an emergency. Thus emerges the traditional legal concept of property rights as a" bundle of sticks, an idea that accurately meshes with the Karpoff's(1987)study of fisheries regulations, which we note later, implicitly recognizes complex assets Smith labels this regime a'semi-commons, though like the term anti-commons it is not clear that this identifies a distinct and fundamental economic regil The complete Latin phrase is cujus est solum ejus est usque ad coelum, which translates'to whomsoever the soil belongs, he owns also to the sky and to the depths (Dukeminier and Krier 2002, p 141 Ploof v Putnam 81 Vt. 471, 71 A 188 (Supreme Court of Vermont, 1908). Here a person was allowed to tie- down a boat at a private dock during a severe storm without permission. The court ordered the user to pay for the use of the asset
Lueck & Miceli – Property Law 13 rights -- and one long recognized in law – is the distinction between use rights and transfer rights. The standard fee simple bundle included both the right to possess (use) and the right to transfer but many rights are only for exclusive use (e.g., riparian water rights, many servitudes). Little work has been done to understand the forces that determine the optimal complexity of property rights.42 This area thus remains an important area for future work. Smith’s (2000) study of the common field system of medieval Europe is one of the few to examine the economic logic of a mixed property regime. Smith notes that for crops the land in the typical village was private, but that for grazing the land was common property.43 He notes how private property for crops provides incentives for investment and husbandry and how a larger scale of land ownership is optimal for grazing (of private herds). Lueck’s (1989) study of wildlife law recognizes that wildlife is but one of many valuable attributes of the land for which the dominant property regime is most often governed by agricultural use. Ellickson (1993) similarly notes a wide range of mixed regimes, including legal and customary rights. These studies are important in furthering our understanding of the complexity of rights but are lacking a cohesive (and ultimately formalized) framework. The modern principal-agent literature on contracts, especially that on moral hazard, may be a starting point as our discussion of land leases in Section 5 suggests. The major question is to what extent each individual attribute of an asset can be treated as an independent asset whose ownership is independently determined. The common law of property can be said to begin with the ad coelum doctrine’s mandate that ownership of land includes all attributes in an infinite projection above and below the earth’s surface.44 In this system the only ownership question is the size of the surface boundaries. The ad coelum framework ultimately breaks down because various attributes (as the rancher example shows) have different surface projections. Thus the optimal tract size of land for a home may be one acre, but for an oil reservoir it may be ten thousand acres and for an airshed it may be much larger still. The law has long recognized the limits of the ad coelum doctrine and has developed to accommodate the demand of different attributes of land. The law of servitudes and the law of separate estates in water and minerals are clear examples. Modern public administration of environmental resources is a recent application (e.g. Rose 1998). The law of nuisance and trespass, the focus of Coase’s analysis, has to do with conflicts that ultimately arise between the owners of adjacent parcels, which derive from complex assets with various dimensions of use. The doctrine of private necessity, for example, is an exception to the law of trespass, which actually allows one to use another’s property in an emergency.45 Thus emerges the traditional legal concept of property rights as a ‘bundle of sticks;’ an idea that accurately meshes with the 42 Karpoff’s (1987) study of fisheries regulations, which we note later, implicitly recognizes complex assets. 43 Smith labels this regime a ‘semi-commons,’ though like the term anti-commons it is not clear that this identifies a distinct and fundamental economic regime. 44 The complete Latin phrase is cujus est solum ejus est usque ad coelum, which translates ‘to whomsoever the soil belongs, he owns also to the sky and to the depths’ (Dukeminier and Krier 2002, p.141). 45 Ploof v. Putnam 81 Vt. 471, 71 A 188 (Supreme Court of Vermont, 1908). Here a person was allowed to tiedown a boat at a private dock during a severe storm without permission. The court ordered the user to pay for the use of the asset
Lueck 8 Miceli-Property Lato allows a wide variety of subdivision of rights in time, use and space. 46, the complexity and mixed ownership of real assets. As Ellickson(1993)notes 3. The Origin of Property rights This section examines the origin of property rights. In both custom and law first possession has been the dominant method of establishing rights, and the rationale for and the effects of this mechanism will be examined closely. It will be clear that the manner by which possession is session are also examined including auctions, lotteries, and administrative assignmen a defined and enforced will be crucial in the type of rights that are created. Alternatives to first 3.1. First Possession First possession rules can operate on different margins. For instance, the rule can grant ownership of a single bison to the first person that kills it under the so-called rule of capture, or it can grant ownership of the entire herd to the first person that claims ownership of the entire living herd. The behavior of the possessor and the use of the bison resource will obviously differ in the two cases. In the initial case, first possession applies to the flow of output from the stock of living bison, while in the second case the rule applies to the stock itself. In the bison example, the rule of capture is expected to emerge --and in fact did-- because the cost of enforcing possession to the live herd is prohibitive(Lueck 2002) Figure 1 illustrates the effects of a first possession rule, beginning with an unowned asset. As the left branch of the figure shows, if applied to a stock, private property rights are established directly through possession. On the right branch, if only a flow (or a portion of the stock)can be possessed, the rule of capture ensues. Thus both paths have the potential for dissipation, either from a race to claim the stock or from open access exploitation. In a race, dissipation takes the form of excessive investment prior to ownership, but the resource is unaltered. In contrast, under the rule of capture dissipation manifests as overuse of the resource(and possibly damage) Figure I here] The stock-flow distinction also illuminates the temporal dimensions of ownership. For example, possession could grant ownership of a pasture in perpetuity or it could simply grant ownership of the grass currently being grazed by one's livestock. Perpetual ownership means ownership of the stock, while a shorter term of ownership means stream of flows, so the formal economic model is inter-temporal. Granting rights toe ownership of some flows. Granting rights to stocks also confers ownership to the future flows, on the other hand, means ownership is a one-time event, so the formal economic model examines just one period. Of course, there can be ownership rights of intermediate term(.g, patents, copyrights but this simple dichotomy covers most of the important cases and serves to clarify the model Some recent studies have noted that property law tends to allow only a certain number of standard bundles of rights(Ellickson 1993, Merrill and Smith 2000, Hansmann and Kraakman 2002). The explanations for this numerus clauues doctrine focus on measurement and information costs
Lueck & Miceli – Property Law 14 complexity and mixed ownership of real assets. As Ellickson (1993) notes, the common law allows a wide variety of subdivision of rights in time, use, and space.46 3. The Origin of Property Rights This section examines the origin of property rights. In both custom and law first possession has been the dominant method of establishing rights, and the rationale for and the effects of this mechanism will be examined closely. It will be clear that the manner by which possession is defined and enforced will be crucial in the type of rights that are created. Alternatives to first possession are also examined including auctions, lotteries, and administrative assignments. 3.1. First Possession First possession rules can operate on different margins. For instance, the rule can grant ownership of a single bison to the first person that kills it under the so-called rule of capture, or it can grant ownership of the entire herd to the first person that claims ownership of the entire living herd. The behavior of the possessor and the use of the bison resource will obviously differ in the two cases. In the initial case, first possession applies to the flow of output from the stock of living bison, while in the second case the rule applies to the stock itself. In the bison example, the rule of capture is expected to emerge --and in fact did -- because the cost of enforcing possession to the live herd is prohibitive (Lueck 2002). Figure 1 illustrates the effects of a first possession rule, beginning with an unowned asset. As the left branch of the figure shows, if applied to a stock, private property rights are established directly through possession. On the right branch, if only a flow (or a portion of the stock) can be possessed, the rule of capture ensues. Thus both paths have the potential for dissipation, either from a race to claim the stock or from open access exploitation. In a race, dissipation takes the form of excessive investment prior to ownership, but the resource is unaltered. In contrast, under the rule of capture, dissipation manifests as overuse of the resource (and possibly damage). [Figure 1 here] The stock-flow distinction also illuminates the temporal dimensions of ownership. For example, possession could grant ownership of a pasture in perpetuity or it could simply grant ownership of the grass currently being grazed by one's livestock. Perpetual ownership means ownership of the stock, while a shorter term of ownership means ownership of some flows. Granting rights to stocks also confers ownership to the future stream of flows, so the formal economic model is inter-temporal. Granting rights to flows, on the other hand, means ownership is a one-time event, so the formal economic model examines just one period. Of course, there can be ownership rights of intermediate term (e.g., patents, copyrights) but this simple dichotomy covers most of the important cases and serves to clarify the model. 46 Some recent studies have noted that property law tends to allow only a certain number of standard bundles of rights (Ellickson 1993, Merrill and Smith 2000, Hansmann and Kraakman 2002). The explanations for this numerus clauues doctrine focus on measurement and information costs