Making Coasean Property More Coasean

Abstract

In his pioneering work on transaction costs, Ronald Coase presupposed a picture of property as a bundle of government-prescribed use rights. Not only is this picture not essential to Coase's purpose, but its limitations emerge when we apply Coase's central insights to analyze the structure of property itself. This leads to the Coase corollary: in a world of zero transaction costs, the nature of property does not matter to allocative efficiency. However, as with the Coase theorem, the real implication is for our world of positive transaction costs: we need to subject the notion of property to a comparative institutional analysis. Because transaction costs are positive, property is initially defined in terms of things, uses are grouped under exclusion rights, and in rem rights are widely employed. A more thoroughly Coasean approach points back to a picture of property more like the traditional one furnished by the law. The authors thank Benito Arruñada, Yun-chien Chang, Bob Ellickson, Tom Hazlett, and an anonymous reviewer as well as participants at the conference Markets, Firms, and Property Rights: A

Property in Licences and the Law of Things

“…One way that, for Smith, "things" (as defined by law) are important to property law lies in the way that a right that others not interfere with the thing groups a set of Hohfeldian incidents into a "baseline" entitlement of the owner. 93 But as Smith himself has shown in a different context, the law of property sometimes sets this baseline not by use of modular "things", but instead by making reference to pre-existing customs. 94 He discusses Miller v. Shoene, 95 where the Supreme Court of the United States held that a certain regulation-one that, in order to control a fungus that infected apple trees and red cedars and killed the apples, prescribed cutting down the cedar trees (but not the apple trees) without any compensation (for the lost value of the trees) for the cedars' owners-was not a taking.…”

Bright-Line Fever: Simple Legal Rules and Complex Property Customs among the Fataluku of East Timor

“…Fuzzy rules involve levels of ambiguity or discretion that may require ex post interpretation by a source of adjudicative authority (Dukeminier & Krier : 103–21; Krier : 155–56; Penner : 148). Merrill and Smith (: 31–34; : 39) argue that bright‐line rules are the appropriate baseline for property regulation because property information is costly in nature (see also Smith : 1108–13). Unlike in personam rights, which are limited to specified parties to a contract or Court judgment, the in rem rights of property establish duties of noninterference in a broad class of potential violators.…”

“…Recent law and economics scholarship has revived a debate on bright‐line rules of exclusion in property theory. Thomas Merrill and Henry Smith () argue that exclusion better defines the core element of property than the metaphor of a “bundle of rights.” Their argument is based on a conception of property as an act of communication: unlike rights in contract, property rights are good “against the world,” and require rules that reduce the costs of information for a broad class of potential violators or transactors (Merrill & Smith : 359; : 31–34). The burden of information explains the simplicity of messages about property: “keep off” or “don't touch” (Merrill & Smith : 25).…”

“…Thomas Merrill and Henry Smith () argue that exclusion better defines the core element of property than the metaphor of a “bundle of rights.” Their argument is based on a conception of property as an act of communication: unlike rights in contract, property rights are good “against the world,” and require rules that reduce the costs of information for a broad class of potential violators or transactors (Merrill & Smith : 359; : 31–34). The burden of information explains the simplicity of messages about property: “keep off” or “don't touch” (Merrill & Smith : 25). Simple messages are necessary, as a baseline for the design of property rules, because of the “staggering” cost of information if “all the world” had to understand a range of permitted uses, or deal with multiple interest holders in a resource (Merrill & Smith : 25).…”

“…The burden of information explains the simplicity of messages about property: “keep off” or “don't touch” (Merrill & Smith : 25). Simple messages are necessary, as a baseline for the design of property rules, because of the “staggering” cost of information if “all the world” had to understand a range of permitted uses, or deal with multiple interest holders in a resource (Merrill & Smith : 25).…”