What Rights Should be Protected
Law and Economics-Charles W. Upton
How do we define rights
• A natural question is how to define property
rights. Some examples.
What Rights Should be
Protected
How do we define rights
• A natural question is how to define property
rights. Some examples.
– Subsurface rights to oil and gas rights. How
much land must the landowner have in order to
tap into the oil rights?
What Rights Should be
Protected
How do we define rights
• A natural question is how to define property
rights. Some examples.
– Subsurface rights to oil and gas rights. How
much land must the landowner have in order to
tap into the oil rights?
– Wild animals. Who has title to wild animals?
And indeed to domestic animals?
What Rights Should be
Protected
How do we define rights
• A natural question is how to define property
rights. Some examples.
– Subsurface rights to oil and gas rights. How much land
must the landowner have in order to tap into the oil
rights?
– Wild animals. Who has title to wild animals? And
indeed to domestic animals?
– Rights to use a stream. Just what rights does a person
have to use a stream flowing through his or her land?
What Rights Should be
Protected
Two Rules
• First possession. The first one to own
property is entitled to use it.
• Tied ownership. Ownership of a given
resource determines ownership of another
resource.
What Rights Should be
Protected
Two Rules
• First possession. The first one to own
property is entitled to use it.
• Tied ownership. Ownership of a given
resource determines ownership of another
resource.
• Lets apply them to some cases.
What Rights Should be
Protected
The Oil Well
• I sink an oil well my land and begin to
pump oil.
What Rights Should be
Protected
The Oil Well
• I sink an oil well my land and begin to
pump oil.
• Since an oil field is relatively porous, some
of the oil I pump will have originally lain
below my neighbor’s property.
What Rights Should be
Protected
The Oil Well
• I sink an oil well my land and begin to
pump oil.
• Since an oil field is relatively porous, some
of the oil I pump will have originally lain
below my neighbor’s property.
• Who owns that oil?
What Rights Should be
Protected
•
The
Oil
Well
If we adopt the right of first
possession, I do.
• I sink an oil well my land and begin to
pump oil.
• Since an oil field is relatively porous, some
of the oil I pump will have originally lain
below my neighbor’s property.
• Who owns that oil?
What Rights Should be
Protected
•
The
Oil
Well
If we adopt the right of first
possession, I do.
• I sink an oil well my land and begin to
Landowners have an
pump•oil.
torelatively
pump fast,
which
• Since anincentive
oil field is
porous,
some
is IHicks-Kaldor
inefficient.
of the oil
pump will have
originally lain
below my neighbor’s property.
• Who owns that oil?
What Rights Should be
Protected
•
The
Oil
Well
If we adopt the right of first
possession, I do.
• I sink an oil well my land and begin to
Landowners have an
pump•oil.
torelatively
pump fast,
which
• Since anincentive
oil field is
porous,
some
is IHicks-Kaldor
inefficient.
of the oil
pump will have
originally lain
below my
neighbor’s
• More
gets property.
spent on wells.
• Who owns that oil?
• The process of rapid
extraction is wasteful
What Rights Should be
Protected
This is what we ought to do
MR
What Rights Should be
Protected
This is what we ought to do
We can restrict
the number of
wells by limiting
wells to so many
MR
per acre, with
the landowners
profiting in
proportion to the
land owned.
What Rights Should be
Protected
This is what we ought to do
We can restrict
the number of
wells by limiting
wells to so many
MR
per acre, with
the landowners
profiting in
proportion to the
land owned.
If we must get
permission of all
the landowners, in
(say) 40 acres, we
can run into high
transactions cost.
What Rights Should be
Protected
The Wild Animal
• In the case of a wild animal, the rule of first
possession would give title to the first
possessor.
What Rights Should be
Protected
The Wild Animal
• In the case of a wild animal, the rule of first
possession would give title to the first
possessor.
• A rule of tied ownership might give title to
the person on whose land the animal was
born (or conceived).
What Rights Should be
Protected
The Wild Animal
• Neither is perfectly satisfactory.
– Consider a school of fish. If we allow first
possession, then everyone will act to deplete the
fish.
What Rights Should be
Protected
The Wild Animal
• Neither is perfectly satisfactory.
– Consider a school of fish. If we allow first
possession, then everyone will act to deplete the
fish
– This problem sometimes referred to as the
tragedy of the commons.
What Rights Should be
Protected
The Wild Animal
• Neither is perfectly satisfactory.
– And if the animal belongs to the
landowner where the animal is conceived
or born, questions of proof abound.
What Rights Should be
Protected
The Wild Animal
• We treat many animals as public goods.
Thus you need a hunting or fishing license.
What Rights Should be
Protected
A New Invention
• The rule of first possession would be that
the first one to get the invention owns it.
What Rights Should be
Protected
A New Invention
• The rule of first possession would be that
the first one to get the invention owns it.
• In the case of tied ownership, the invention
might fall to some other property.
– Thus, if I invent a new improved version of
Windows, the title might fall to Microsoft.
What Rights Should be
Protected
A New Invention
• Either rule has problems.
• The rule of first possession would be that
A rule
of first
possession
the first• one
to get
the invention
ownsoften
it.
means
expensive
• In the case
of tiedan
ownership,
the(i.e.,
invention
might fallHicks-Kaldor
to some otherinefficient)
property. race to
be
the
first.
– Thus, if I invent a new improved version of
Windows, the title might fall to Microsoft.
What Rights Should be
Protected
A New Invention
• Either rule has problems.
• The rule of first possession would be that
A rule
of first
possession
the first• one
to get
the invention
ownsoften
it.
means
expensive
• In the case
of tiedan
ownership,
the(i.e..,
invention
might fallHicks-Kaldor
to some otherinefficient)
property. race to
be
the
first.
– Thus, if I invent a new improved version of
Windows,
title might
fallimproved
to Microsoft.
• Butthesince
a new
version of Windows will belong
to Microsoft, I have no incentive
What Rights
Should be
to develop
one.
Protected
Riparian vs. Aquarian Rights
• In the East, water is relatively plentiful, so
the landowners rights are defined to protect
downstream users.
– I can swim
– I cannot build a dam
– I cannot pollute
What Rights Should be
Protected
Riparian vs. Aquarian Rights
• In the East, water is relatively plentiful, so
the landowners rights are defined to protect
downstream users.
• In the West, water is scarce so rights define
the rights of people to withdraw water from
the stream
What Rights Should be
Protected
End
©2004 Charles
W. Upton
What Rights Should be
Protected