Is property a black box? Is it best understood in terms of the relationship between owners and nonowners, without regard to the internal dynamics of property stakeholders? Exclusion theorists of property think that the concept of property properly concerns only the relations between owners and nonowners—that is, the external relationships of owners, or what we might call the “external life” of property. From this perspective, the internal relationships among property stakeholders—the “internal life” of property—are irrelevant from a conceptual point of view, even though these relationships are often very significant to property as a doctrinal matter. To exclusion theorists, all that matters conceptually is the owner’s right to exclude nonowners from using, possessing, or interfering with the owner’s asset. Therefore, what happens within the box—between or among the persons having a property interest in the asset—is of no concern to property law. The law of property, built around the right to exclude, concerns itself primarily with the owner’s relationship with the rest of the world.
This is a distorted and misleading view of property, however. To reveal this misconception, I will distinguish between two types of property, which I call exclusion property (EP) and governance property(GP).
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This Article has two main theses: one is positive, the other normative. The positive thesis is that governance property, not exclusion property, is the dominant mode of ownership today. The rise of governance property reverses what Charles Donahue calls “the agglomerative tendency,” defined as the “tendency to agglomerate in a single legal person, preferably the one currently possessed of the thing that is the object of inquiry, the exclusive right to possess, privilege to use, and power to convey the thing.” I argue that the emergence of GP as the predominant form of property means that the right to exclude can no longer be considered the core of private ownership. The right to exclude, although important, is not central to GP; rather, internal governance mechanisms are essential. The exclusion theory of property cannot account for GP; at best, it can only account for EP. EP is Blackstonian property, man-in-his-castle property, owner-versus-the-world property. Therefore, EP involves only external relationships with third parties and raises no internal governance issues because all rights and privileges are consolidated in one person. By contrast, GP involves both types of issues—internal governance and external relations. The internal governance issues may be quite complex as com-pared to issues involving the multiple owners’ relations with third parties. Because dealing with third parties is less complicated, the right to exclude is less central to GP than it is to EP.
Quasi-Property: Like, But Not Quite Property
Quasi-property interests refer to situations in which the law seeks to simulate the idea of exclusion, normally associated with property rights, through a relational liability regime, by focusing on the nature and circumstances of the interaction in question, which is thought to merit a highly circumscribed form of exclusion. In this Article, I unpack the analytical and normative bases of quasi-property interests, examine the primary triggering events that cause courts to invoke the category, and respond to potential objections to the recognition of quasi-property as an independent category of interests in the law.
The Case for Imperfect Enforcement of Property Rights
There is nothing so uncontestable as the incentive of an owner to safeguard her belongings. Yet property law contains various rules and doctrines that force owners to adopt measures to protect their assets. For instance, a number of regulations and administrative procedures require owners of gas stations to use “prepay pumps” to eliminate the threat of customers pumping gas and then fleeing before paying. Pre-1976 copyright law provides another example: historically, authors of copyrightable works lost ownership rights if they published the works without affixing proper notice to all copies of the work, and thereby notifying potential users of the copyright claim. The law of trade secrets supplies a third example: the Economic Espionage Act explicitly requires “reasonable measures to keep . . . information secret” as a condition of enjoying legal protection for the information as a trade secret.
These and similar state-imposed demands on property owners seem puzzling and counterintuitive. After all, property owners have their own incentives to voluntarily adopt measures to secure their entitlements in their belongings. So why do lawmakers deem it necessary to enact rules to induce behavior that would happen in any event?
In this Article, we argue that one solution to the puzzle lies in an important and underappreciated countereffect emanating from state enforcement of property rights. The accepted lore among property theorists is that state enforcement of private property rights is both desirable and efficient due to economies of scale and scope that can be realized via this centralized enforcement. Going against the conventional wisdom, we argue in this Article that state enforcement also has a downside: it may give rise to a moral hazard problem that distorts owners’ investment incentives, causing them to take suboptimal pre-cautions to protect their property and externalize those costs onto the state instead. After all, it is easy to think of some cases where owners can protect their property rights more cost-effectively than can the state, and of other cases where a combination of private and state provision of enforcement is optimal. For instance, in many cases, mandatory registration requirements provide a far cheaper and more effective means of protecting many kinds of property rights than any action the state may take alone.
A bridge stretching only three-quarters of the distance across a chasm is useless, while a bridge that is longer than necessary does no more good than one that just spans the gap. This standard, intuitive example of a lumpy, indivisible, or “step” good makes regular appearances in the literature on collective action. But it also illustrates a point about discontinuities and complementarities that has broad, and mostly unexplored, significance for property law. From land assemblies to takings doctrines to cotenant partitions to public housing to the numerus clausus principle, we see property delivering value—and being delivered to us—in certain identifiable, discontinuous chunks. This Article examines the implications of lumpiness for property theory and doctrine. While strains of this conceptual element run through some of the existing theoretical work on property, the ways in which lumpiness may explain, justify, and challenge features of property law have not been systematically analyzed.
Viewing property through the lens of lumpiness matters for at least three reasons. The first is descriptive accuracy. Property law is lumpy as a positive matter, filled with doctrines and approaches that deal with the world in discrete, hard-to-divide chunks. Understanding how property operates thus requires an appreciation of its lumpiness. Second, optimal property design requires evaluating the chunkiness that is built into property doctrines and asking whether and how it corresponds to underlying discontinuities in the production or consumption of property. Third, many of property law’s most important conflicts can be usefully framed as “lump versus lump.” For example, an exercise of eminent domain may achieve a valuable spatial aggregation by splitting up some other aggregation, such as lengthy temporal attachments to the land or a cohesive community that shares social capital. Recognizing the significance of nonlinearities in such stories can offer new traction on contemporary property debates.
Managing the Urban Commons
Over the past several decades, discussions about the appropriate tools of commons management have played out in a particularly illuminating way in policy debates about the management of urban public spaces. Urban public spaces are not a pure commons per se, as they have owners (i.e., local governments). However, political and constitutional limitations placed on those owners dramatically curtail the extent to which they control those spaces, resulting in streets, parks, and sidewalks very strongly resembling commons. These public-space management discussions tend to map themselves neatly onto theoretical debates about commons resource management. Some commentators urge, à la Hardin, that government coercion is needed to restore order to the urban commons: Broken Windows is of this ilk, as are portions of Robert Ellickson’s work on public-space zoning. Others urge the privatization of urban public spaces to transform them into some-thing akin to Dagan and Heller’s “liberal commons.”
On the ground in American cities, these theoretical arguments have been translated into concrete policies, including policing strategies (for example, order-maintenance and community policing) and urban development strategies (for example, business improvement districts (BIDs)). The former clearly instantiates the view that successful commons management depends on government coercion, and the latter represents a conviction that the quasi privatization of the commons is advisable. While, legally, the management of urban common spaces remains the purview of the police, quasi-privatization mechanisms such as BIDs also perform public-space management functions, especially the funding of infrastructure improvements and supple-mental public services. The much celebrated (and debated) urban re-bound of the past two decades suggests that this compromise has been partially successful, insofar as success is measured by a resurgent urban population base and the renewal of central-city neighborhoods.
This is an opportune time to reexamine the commons-management questions raised by these policies. As this Article’s opening anecdote suggests, the current economic crisis is forcing cities to scale back law enforcement efforts, and it is limiting the financing available to fund sublocal investments in urban public spaces. It is possible that these pressures will lead the current urban-commons compromise to unravel, resulting in less public regulation of urban public spaces, more pressure for private regulation, or both. Using these tensions as a starting point, this Article will draw upon the literature on commons-space management from multiple disciplines—especially law, economics, and sociology—to reflect critically upon the optimal regulation of urban public spaces and the possibility of cooperative commons management arising in the absence of government regulation.
Governing Through Owners: How and Why Formal Private Property Rights Enhance State Power
In recent years, many Western governments and organizations have pressed developing nations to build robust private property institutions and have made large sums available for such property-related projects. One of the central justifications that policymakers and theorists provide for this strategy is that it will increase the economic power and freedom of individuals, thereby making them less vulnerable to the state.
In this Article, I argue that in many cases, precisely the opposite is true: the formalization of private property rights actually makes owners more vulnerable to the state and enhances the state’s governance powers over them. When property rights are formalized, the state gains the power to define the scope of those rights. This, in turn, provides the state with opportunities to impose significant burdens on owners. A system of formal private property rights serves as a mechanism through which the state can allocate responsibility to individuals on a mass scale for a wide variety of tasks, including some of the state’s core governance functions. Because many of the state’s core governance functions are territorially defined (such as maintaining peace and order within the territory, defending the territory from external threats, and providing infrastructure), this phenomenon appears most clearly in the case of private property rights in land. A network of landowners is a useful (and sometimes crucial) tool that lets a state govern locally in the farthest reaches of its territory, even when it lacks the capacity or will to use other more formal tools for governance, such as governing by bureaucracy or license. Thus, it is useful to think of the state’s power to define property rights in a manner that includes obligations to carry out core state governance functions as itself a mode of governance. I call this governing through owners.
The Property Strategy
My objective in this Article is to offer a description of property as an institution for organizing the use of resources in society. There are several strategies for deciding how valued things will be used, and by whom. “Might makes right” is one approach: we can let a strongman decide these questions. Bureaucratic governance is another: we can create a hierarchical organization and adopt rules and procedures for allocating resources. Group consensus is a third: questions about resource use can be resolved through meetings and discussion among those most closely involved. The claim advanced here is that property is a distinctive strategy for determining how resources will be used and by whom. It is worth trying to figure out what differentiates it from other strategies for performing this function.
All organized human societies use the property strategy to one degree or another. Preliterate societies, with the possible exception of the most primitive hunter-gatherers, follow the property strategy with respect to certain resources, like tools, baskets, and crops. The most resolute communist states, such as Stalinist Russia or North Korea, give individuals unique rights to control certain resources, such as clothing and toothbrushes. Even within small and informally organized social groups like households, a version of the property strategy typically prevails with respect to certain objects such as toys, books, articles of clothing, and even bedrooms. My effort here is to unearth the common denominator that characterizes formal and informal uses of property in a wide range of social settings as a means of organizing the use of resources.
Once we have uncovered the common denominator of the property strategy in its different manifestations over time and place, certain implications follow for the law of property. Property law is highly complex, and all of its details cannot be reduced to the elemental features of the property strategy. Nevertheless, the law of property builds upon and grows out of the property strategy. The features of the property strategy can be seen as the base of a pyramid, the upper reaches of which are occupied by highly refined and often arcane doctrines, such as the law of future interests, common-interest communities, patent and copyright law, and asset securitization. Rather than seeking to understand the institution of property by generalizing from one or more of these refined legal doctrines, I submit that a better approach is to consider what makes property work in its most elemental applications. We can then better understand the reasons for, and limits on, the property strategy that we find in the law of property.
On the Economy of Concepts In Property
Concepts help economize on information. Conventional wisdom correctly associates conceptualism with formalism but misunderstands the role concepts play in law. Commentators from the Legal Realists onward have paid insufficient attention to the distinction between concepts and the categories they pick out (or, to borrow from philosophical semantics, the intension and extension of legal relations). Even though two concepts may identify the same category, they can differ greatly in terms of information costs. This Article applies tools of cognitive science to explore the economics of legal concepts. Both the mind and the law are information-processing devices that manage complexity and economize on information by employing concepts and rules, the specific-over-general principle, modularity, and recursion. These devices work in tandem to produce the economizing architecture of property. As in cognitive science, we expect simplicity of description and generality of explanation to coincide. This Article then applies the cognitive theory of property to longstanding puzzles like the role of baselines—such as nemo dat (“one cannot give that which one does not have”) and ad coelum (“one who owns the soil owns to the heavens above and the depths below”)—the notion of title, and the function of equity as a safety valve for the law. The theory developed here provides a more elegant description of the law, better generalizes to new situations, and therefore helps to explain and justify the robustness of traditional baselines in property law. The cognitive theory also allows one to reconcile reductionism and holism in property theory, as well as static and process descriptions of the contours of property.
Strict Liability and Negligence in Property Theory
Property theorists typically conceptualize property as a strict liability regime. Blackstone characterized property as “that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.” In more modern terms, property represents what Henry Smith has called an “exclusion strategy”: property law delegates decisions about resource use to an owner, who “is responsible for deciding on and monitoring specific activities with respect to the resource.” Any interference with the owner’s property right in itself gives rise to a legal claim by the owner. The usurper’s excuses for the interference are irrelevant and do not serve as defenses.
The prevailing conception of property is one of clear boundaries, easily and inexpensively ascertainable by owners and potential users. Within that conception, a strict liability regime makes considerable sense: it delegates control over resource use to owners, reducing the need for courts and potential resource users to educate themselves about the value of competing resources. At the same time, strict liability imposes no hardship on encroachers or infringers. An encroacher or infringer only uses a neighbor’s rights because he (unlike the paradigmatic tortfeasor) derives economic benefit from those rights. The gains from use of the owner’s rights provide a fund from which the encroacher can compensate the owner for his losses. If property boundaries were always clear, however, both strict liability and negligence regimes would generate identical outcomes. If a potential resource user could costlessly determine which rights he needed and who owned those rights, the user would act negligently—if not intentionally—whenever he encroached on an owner’s rights.
This Article argues that, in cases where ascertaining the scope of boundaries is costly, property law should, and sometimes does, make use of negligence principles. Current doctrine does not directly incorporate the law of negligence into property law. Instead, property law has developed surrogates for negligence-based liability rules. These surrogate rules protect the interests of a usurper who took reasonable care before investing in a property interest he did not own—the same interests a negligence rule would protect. Thus, although explicit discussions of negligence rarely find their way into property law opinions, issues of fault do play a significant role in property cases and perhaps should play a bigger, more explicit role in the future.
Absolute Preferences and Relative Preferences in Property Law
The dominant form of legal discourse in contemporary America is welfarist. Though there are important alternatives, welfarism also largely prevails in property theory: most property scholars presume that maximizing social welfare is the primary goal of a property system and then analyze particular legal rules or institutions based on how well they achieve that objective.
Given that so many property theorists consider ourselves to be welfarists, it is perhaps surprising that property scholars have largely ignored developments in behavioral economics suggesting that people derive utility in divergent ways. I am not referring to the fact that peoples’ preferences differ with respect to, say, the best flavor of ice cream. A growing experimental literature suggests that, among the population of those who prefer chocolate ice cream to vanilla ice cream, there are two distinct camps: absolutists and relativists. Those in the first camp will prefer four scoops of chocolate to three, three to two, two to one, and one to none. This set of preferences is easy for classically trained economists to understand. Those in the second camp are more puzzling because they prefer a situation in which they receive one scoop of ice cream, but those around them receive none, to a situation in which they receive two scoops of ice cream, but those around them receive three.
In the pages that follow, I will try to show how this finding—that some people tend to care more about absolute wealth, while others tend to care more about relative wealth—might help us better understand several mysterious developments in property doctrine and may explain why certain seemingly low-stakes property disputes prove stubbornly unamenable to informal dispute resolution. Along the way, I will suggest that because of this heterogeneity, difficult questions lurk just under the surface in aspects of property doctrine that have long been thought uncontroversial, at least among welfarists.
Beyond Coase: Emerging Technologies and Property Theory
In 1959, Ronald Coase published his landmark paper on the Federal Communications Commission (FCC) that would forever change the study of property rights. The primary focus of Coase’s article was to critique the FCC’s then-current approach to allocating spectrum, in which the FCC designated frequencies exclusively for particular uses (e.g., AM radio, television broadcasting, radio astronomy), divided those bands into individual licenses, and then conducted hearings to determine to whom the Commission should assign operating licenses created within those bands. These restrictions were thought necessary to prevent the chaos that occurs when multiple people attempt to use the same frequency simultaneously as well as to limit the interference that particular uses impose on adjacent frequencies.
Coase’s article on the FCC soon took on “iconic significance for law and economics scholars.” When pressed to expand on his vision of how market transactions could address externalities without direct regulation, Coase responded with The Problem of Social Cost, which laid out what would become known as the Coase Theorem. This work is often described as the most-cited article of all time in both law and economics, served as one of the justifications for awarding Coase the Nobel Prize, and has become “the starting point of most modern discussions of the economics of property rights.”
Coase’s impact on spectrum policy was equally dramatic. Coase’s impact on spectrum policy was equally dramatic. The FCC conducted its first spectrum auction in 1994,11 and, with only a few designated exceptions, current law now requires that the FCC allocate all future licenses via auction. But the FCC has yet to fully embrace the second half of Coase’s vision, which calls for replacing use restrictions with property rights.
I believe that the incomplete reception of Coase’s ideas provides some fundamental insights into new forms of property arising in an increasingly high-tech world. In particular, this incomplete reception suggests that the complex interdependencies that Coase downplayed may play a more important role than he initially thought. This Article explores these key differences and their implications for property theory.