Absolute preferences and relative preferences in property law.

Author:Strahilevitz, Lior Jacob
 
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INTRODUCTION I. HETEROGENEOUS ABSOLUTE PREFERENCES AND RELATIVE PREFERENCES II. APPELLATE CASE LAW CONSIDERING DUAL INHERITANCE FROM ADOPTION WITHIN THE BLOODSTREAM III. EXTENSIONS TO OTHER ASPECTS OF PROPERTY LAW CONCLUSION INTRODUCTION

The dominant form of legal discourse in contemporary America is welfarist. Though there are important alternatives, (1) 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. (2)

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. (3) 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. (4) 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. (5)

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.

Part I of this Article reviews the experimental evidence from behavioral economics, marketing, and law, and explores more fully the pluralistic nature of welfarist frameworks. Part II examines a series of inheritance cases involving "double shares" of testamentary estates, where absolute preferences and relative preferences can help explain starkly divergent outcomes that result in inconsistent case law and occasionally temperamental judicial rhetoric. Some of this rhetoric makes dire predictions about how testamentary beneficiaries will respond to particular distributions. Yet unstated and contestable assumptions about relative and absolute preferences are driving those judges' prognostications. Part III shows how the existence of both absolute and relative preferences illuminates a potential source of future conflict in takings doctrine and might help explain prominent moves toward "difference splitting" in the modern law of easements and waste.

  1. HETEROGENEOUS ABSOLUTE PREFERENCES AND RELATIVE PREFERENCES

    There are two basic stories we can tell about what makes people feel rich. One story says that people feel rich based on the absolute resources available to them. A second story says that people are responsive not to absolute wealth but to relative wealth. Economists have devised simple ways to test how well each of these stories resonates with survey respondents.

    For instance, Sara Solnick and David Hemenway's survey gave respondents two choices: choice A, in which your current yearly income is $50,000 while others typically earn $25,000, or choice B, in which your current yearly income is $100,000 while others typically earn $200,000. (6) The survey's prompt also informed the respondent that prices of goods and services were the same in both scenarios (i.e., the purchasing power of money remained the same). (7) What state of the world will people prefer: A or B? The answer is that roughly half the survey population will prefer either choice. (8) That is, survey populations seem quite heterogeneous, with half the population most concerned with their absolute income and the other half concerned mostly about their income relative to others'.

    Changing the nature or value of the good being consumed affects the ratio of respondents preferring more relative resources to more absolute resources.9 Still, some people appear to be stubbornly oriented toward either absolute resources or relative resources even when such a focus may be disadvantageous. For example, given the competitive nature of the job application process, one would presume that a job interview candidate would prefer a better outfit relative to others interviewing for the same position. Nonetheless, one-third of the survey respondents preferred a nice outfit in absolute terms. (10) Similarly, given that any increase in the length of one's commute leaves drivers with less time to use in more rewarding ways, (11) one would expect survey respondents always to choose a shorter absolute commute. However, eighteen percent of the survey respondents cared more about the length of their commute relative to that of others. (12)

    These sorts of results have also shown up in responses to real-world stimuli. Fox example, when San Diego, California opened its fast-moving carpool lanes to drivers willing to pay a toll, the carpoolers who suddenly had to share "their" lanes with noncarpoolers articulated divergent sentiments. (13) Some objectors grounded their displeasure in absolute preference terms: more cars in the carpool lanes would lengthen carpoolers' commute times due to increased congestion. (14) But other advocates enthusiastically welcomed the change. These carpoolers felt richer precisely because the noncarpoolers using the lane had to pay a sum of money to enjoy the benefits that the carpoolers were already "freely" enjoying. (15) Robert Frank's magisterial study of relative preferences found that similar considerations of relative status powerfully explained economic arrangements such as the commission structures for car salesmen, (16) the salaries of tenured professors, (17) and the proliferation of vice presidents at banks. (18)

    On the basis of this and similar evidence, it seems likely that heterogeneity exists in most populations with respect to whether absolute preferences or relative preferences primarily motivate economic behavior. Frank and others have argued that the desire for status has led to the competitive consumption of particular goods, thus reflecting a focus on relative as opposed to absolute utility. (19) They have also noted a possible neurological connection to humans' propensity to care about relative status. (20) Yet Frank and other social scientists have not emphasized the pluralistic nature of absolute and relative preferences. Indeed, a very recent study using functional magnetic resonance imaging technologies to study subjects' reactions to absolute and relative gains found that across a large, pooled population, both absolute and relative gains tended to spark significant activity in reward-related areas of the brain, but noted that the "variance between subjects is quite large." (21) The paper found no evidence that men or women were systematically oriented toward relative or absolute gains, but it did not elaborate on the extent to which there were distinct camps of neurologically absolute--and relative--gain-focused individuals. (22)

    Fascinatingly, a small body of literature in the field of marketing and consumer behavior--largely ignored by economists--strongly suggests that individuals differ in their levels of status consciousness, that people are consistently status conscious (or not), and that individuals' responses to a test measuring status consciousness correlate with their revealed preferences. (23) Survey respondents who scored high on the personality tests measuring status consciousness were also more likely to purchase designer sneakers, high-end beers, and luxury cars, and more likely to join fraternities or sororities in college. (24) Levels of status consciousness were statistically indistinguishable among populations of students in the United States, Mexico, and China. (25) It is therefore plausible that there are two basic types of status-conscious individuals: "absolute welfarists" and "relative welfarists." (26)

    I will therefore make two defensible assumptions in this Article: (1) individuals differ in their orientations toward absolute and relative preferences, and (2) people who are primarily concerned with relative welfare in one setting are more likely to be oriented toward relative welfare in other contexts. My working hypothesis is that judges will display the same heterogeneity in responses when confronted with a clash between absolute preferences and relative preferences. To test that hypothesis, Part II will analyze a series of inheritance controversies in which judges have had opportunities to confront the issue squarely.

    Before turning to the inheritance cases, it is worth examining the absolute-versus-relative-preferences question from a normative perspective. Regardless of the preferences of survey respondents, is there a "right" way to think about utility--one that the law should privilege? Are relative preferences counterproductive, such that we might disregard them in the same way that some welfarists famously disregard any utility that a Nazi derives from beating a Jew? (27) Two important and recent articles have suggested that property rights should disfavor relative preferences. In the first article, Nestor Davidson argued that various aspects of property law--such as covenants facilitating the creation of common interest communities, public use tests enabling the state to...

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