Conflicts of Entitlements in Property Law: The Complexity and Monotonicity of Rules

Author:Georg von Wangenheim & Fernando Gomez
Position:Professor of Law and Economics, University of Kassel/Professor of Law, Universitat Pompeu Fabra, Barcelona
Pages:2389-2427
SUMMARY

In property law, and especially in the law of nuisance, the simple Calabresi–Melamed scheme of property and liability rules experience significant transformations, mainly through their recombination—which results in rules that are a combination of the elementary rules—and less frequently through the interplay between the rules and public regulatory standards. The result of these combination processes and the interaction between... (see full summary)

 
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2389
Conflicts of Entitlements in Property Law:
The Complexity and Monotonicity of
Rules
Georg von Wangenheim & Fernando Gomez
ABSTRACT: In property law, and especially in the law of nuisance, the
simple Calabresi–Melamed scheme of property and liability rules experience
significant transformations, mainly through their recombination—which
results in rules that are a combination of the elementary rules—and less
frequently through the interplay between the rules and public regulatory
standards. The result of these combination processes and the interaction
between private law rules (property and liability) and public law standards
is a set of complex rules in which some threshold acts as a switch that triggers
a given property or liability rule to change into a different rule. In this respect,
the negligence rule can be seen as a composite rule, consisting of a pure strict
liability rule favoring the victim, and a property rule favoring the injurer,
with the variable of due care acting as the switch between the two. Sometimes,
the number of switches, and thus, the complexity of the rules, increase to two
and, eventually, to a larger number.
The above explanation implies that property law, the area of the law that most
conspicuously (albeit not exclusively) deals with the protection of entitlements
Professor of Law and Economics, University of Kassel.
 Professor of Law, Universitat Pompeu Fabra, Barcelona.
Early drafts of the Essay were written while the first author was a research associate and the
second author a visiting researcher at the Institut für Recht und Ökonomik, University of
Hamburg, whose support is gratefully acknowledged by both. We are thankful to participants at
the Conference on Spontaneous Order and Emergence of New Systems of Property at th e NYU
School of Law, the 20th Annual Conference of the European Association of Law and Economics
in France, the 4th Workshop on Institutional Analysis at the Universitat Pompeu Fabra, the 8th
Annual Conference of the International Society for New Institutional Economics in Tucson, the
Law and Economics Research Seminar at the University of Kassel, and the Meeting of the Italian
Society for Law and Economics in Siena for helpful comments and suggestions on earlier versions
of the Essay. Fernando Gomez also acknowledges the financial support provided by the Spanish
Ministry of Economics and Innovation and by ICREA, an agency of the Catalan Regional
Government. The usual disclaimers apply.
2390 IOWA LAW REVIEW [Vol. 100:2389
is, in fact, much more structurally complex than most current law and
economics analyses have assumed.
We also explore how the switches between elementary rules move along the
variables typically involved in situations of conflict of entitlements: measures
of care taken by parties in conflict, investments made by the parties, and uses
of such investments. We identify how rules appear to be (using, with some
conceptual abuse, the mathematical notion) monotonic in all those variables:
The sequence of elementary rules and switches combined in complex rules does
not allow “reversals of ordering” as choice variables increase or decrease. We
conjecture that new developments and new forms of property would conform
to the monotonicity property we identify and that informal coordination
between the agents involved, instead of heavy reliance on formal legal
enforcement, would play a large role in the choice of the structure of rules
protecting entitlements through future property forms.
I. INTRODUCTION ........................................................................... 2391
A. THE COMPLEXITY OF SCENARIOS IN CONFLICTING USES OF
PROPERTY AND NUISANCE LAW .............................................. 2391
B. THE PROBLEM IN THE EXISTING LITERATURE AND OUR
CONTRIBUTION ..................................................................... 2395
II. LEGAL RULES ON NUISANCE ....................................................... 2398
A. A TAXONOMY OF THE COMPLEX LEGAL RULES GOVERNING
NUISANCE DISPUTES .............................................................. 2398
B. A BRIEF OVERVIEW OF LEGAL REGULATION OF NUISANCE IN
GERMANY, SPAIN, AND THE UNITED STATES ........................... 2401
1. Germany ....................................................................... 2401
2. Spain............................................................................. 2404
3. The United States ........................................................ 2405
III. FRAMEWORK OF THE PROBLEM, SETTING, AND FINDINGS ........... 2406
A. THE PROBLEM ...................................................................... 2406
B. STRUCTURE OF THE INTERACTION AND SOCIALLY OPTIMAL
ACTIONS ............................................................................... 2409
C. EFFECTS OF ELEMENTARY RULES ............................................ 2411
D. EFFECTS OF COMPLEX RULES .................................................. 2415
E. HIGHER ORDER COMPLEX RULES ........................................... 2419
IV. THE MONOTONICITY OF LEGAL RULES AND COORDINATION ..... 2420
V. CONCLUSION .............................................................................. 2426
2015] CONFLICTS OF ENTITLEMENTS IN PROPERTY LAW 2391
I. INTRODUCTION
A. THE COMPLEXITY OF SCENARIOS IN CONFLICTING USES OF PROPERTY AND
NUISANCE LAW
The extensive law and economics literature that jointly analyzes property
rules and liability rules as legal means to allocate and protect entitlements1 in
the nuisance context typically consider relatively simple forms of property
rules and liability rules. In more recent years, scholars’ exploration of more
complex rules, especially in the form of put-option-like alternatives, has raised
considerable interest.2 The related law and economics literature dealing with
the control of externalities3 typically adds regulation and taxes to the simple
property rules and liability rules as instruments for controlling harmful
externalities.
When one examines in detail the rules in place in the law of nuisance—
one of the classical building blocks of property law, and one that directly
addresses conflicting uses by entitlement holders over neighboring tracts of
land—the picture seems to get less structured and more complicated.4 At least
in many European jurisdictions (for instance, in Germany and Spain, along
1. See generally Lucian Arye Bebchuk, Property Rights and Liability Rules: The Ex Ante View of
the Cathedral, 100 MICH. L. REV. 601 (2001) [hereinafter Bebchuk, The Ex Ante View of the
Cathedral]; Richard R.W. Brooks, The Relative Burden of Determining Property Rules and Liability Rules:
Broken Elevators in the Cathedral, 97 NW. U. L. REV. 267 (2002); Guido Calabresi & A. Douglas
Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV.
1089 (1972); Keith N. Hylton, Property Rules and Liability Rules, Once Again, 2 REV. L. & ECON. 137
(2006); Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules: An Economic Analysis,
109 HARV. L. REV. 713 (1996); Lucian Arye Bebchuk, Ex Ante Investments and Ex Post Externalities
(Harvard Olin Discussion Paper No. 397, 2002) [hereinafter Bebchuk, Ex Ante Investments and
Ex Post Externalities], available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=297091.
2. See generally IAN AYRES, OPTIONAL LAW: THE STRUCTURE OF LEGAL ENTITLEMENTS
(2005); Ronen Avraham, Modular Liability Rules, 24 INTL REV. L. & ECON. 269 (2004); Ian Ayres
& J.M. Balkin, Legal Entitlements as Auctions: Property Rules, Liability Rules, and Beyond, 106 YALE L.J.
703 (1996); Ian Ayres & Paul M. Goldbart, Optimal Delegation and Decoupling in the Design of Liability
Rules, 100 MICH. L. REV. 1 (2001); Lee Anne Fennell, Property and Precaution, 4 J. TORT L. 1
(2011); James E. Krier & Stewart J. Schwab, Property Rules and Liability Rules: The Cathedral in
Another Light, 70 N.Y.U. L. REV. 440 (1995); see also Yun-chien Chang, Optional Law in Property:
Theoretical Critiques, 9 N.Y.U. J.L. & LIBERTY (forthcoming 2015), available at http://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2351651.
3. For early examples, see generally R. H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1
(1960); A. Mitchell Polinsky, Controlling Externalities and Protecting Entitlements: Pro perty Right,
Liability Rule, and Tax-Subsidy Approaches, 8 J. LEGAL STUD. 1 (1979) [hereinafter Polinsky,
Controlling Externalities and Protecting Entitlements]; A. Mitchell Polinsky, Resolving Nuisance Disputes:
The Simple Economics of Injunctive and Damage Remedies, 32 STAN. L. REV. 1075 (1980)[hereinafter
Polinsky, Resolving Nuisance Disputes].
4. The relative complexity of nuisance law vis-à-vis other areas of property law, such as
trespass, is a relevant dimension in the analysis of Thomas W. Merrill, Trespass, Nuisance, and the
Costs of Determining Property Rights, 14 J. LEGAL STUD. 13, 23–26 (1985). Merrill conceives the law
of nuisance as a judgmental—and not mechanical—entitlement determination scheme. Id.

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