CONTENTS INTRODUCTION: RONALD H. COASE AND THE LAW I. THREE IMPORTANT ENGLISH LEGAL DECISIONS THAT PROTECT PROPERTY USE FROM INTERFERENCE A. Preventing Hazard. The Assisa de Edificiis B. Facilitating Division: The Early Assize of Nuisance C. Preventing Interference: The Modified Assize of Nuisance II. COASE'S ECONOMIC ANALYSIS OF THE COMMON LAW EXPLAINS THESE THREE ENGLISH NUISANCE DECISIONS A. Coase's Economic Analysis B. Coase's Analysis Explains the Assisa de Edificiis C. Coase's Analysis Explains the Early Assize of Nuisance D. Coase's Analysis Explains the Modified Assize of Nuisance III. COASE'S ECONOMIC ANALYSIS OF THE COMMON LAW DISAGREES WITH TWO IMPORTANT NUISANCE EXCEPTIONS A. Competitive Nuisance: Hamlyn v. More B. Wild Animal Nuisance: Boulston v. Hardy C. Coase's Analysis Does Not Explain These Decisions 1. Disagreeing with Hamlyn v. More 2. Disagreeing with Boulston v. Hardy IV. THE ANALYSIS'S DISAGREEMENT WITH IMPORTANT COMMON LAW NUISANCE EXCEPTIONS DEMONSTRATES ITS UNSOUNDNESS AND SUGGESTS ITS INCOMPLETENESS A. Coase's Analysis Unsoundly Ignores Sympathy 1. Evocation of Sympathy: Tragedy v. Comedy 2. Insufficient Sympathy Explains Hamlyn v. More 3. Insufficient Sympathy Explains Other Legal Decisions B. Coase's Analysis Unsoundly Misconstrues Capacity 1. Estimation of Capacity: Parlor Pigs v. Rascally Rabbits 2. Perceived Incapacity Explains Boulston v. Hardy 3. Perceived Incapacity Explains Other Legal Decisions C. Coase's Analysis May Also Be Incomplete 1. Sufficient Sympathy May Explain Other Legal Decisions 2. Perceived Capacity May Explain Other Legal Decisions CONCLUSION: THE VALUE OF UNSOUND AND INCOMPLETE ANALYSIS INTRODUCTION: RONALD H. COASE AND THE LAW
In The Problem of Social Cost, economist Ronald H. Coase criticized what he called the traditional "economic analysis" of legal questions as embodied in the work of Arthur C. Pigou, another economist. (1) Thirty years later, Coase received the Nobel Prize in Economics "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy." (2) The Nobel Committee stated that Coase's "achievements have provided legal science ... with powerful impulses and are therefore also highly significant in an interdisciplinary context" and that "Coase's theories are among the most dynamic forces behind research in ... jurisprudence." (3)
The Committee singled out Coase's work in The Problem of Social Cost as a "major study" in which
Coase found that courts probably try to distribute ... rights among the parties so as to realize the solution which would have been the outcome of an agreement, if such an agreement had been possible. The underlying idea is that this is a natural and rational way for a court to reason if it is more intent on setting a precedent to generate expedient incentives for the fixture than solving a particular dispute. This means that common pleas courts serve as an extension of the market mechanism to areas where it cannot function due to transaction costs. This hypothesis has become immensely important because, along with the general formulation in terms of rights or property rights, it has become the impetus for developing the new discipline of "law and economics" and ... for renewal of many aspects of legal science. (4) Indeed, The Problem of Social Cost is one of the most frequently cited articles in law reviews. (5)
Coase offers an economic analysis that explains the results of three important English legal developments: the institution of building regulation in London, the establishment of legal protection for easements and profits, and the establishment of legal protection from interference with quiet enjoyment. These developments provide a suitable context for illustrating and demonstrating his work. All three protect property from unwanted interferences in legal parlance, from nuisances. They are especially appropriate for examination because the "analytics of the classic nuisance dispute have been the touchstone of economic theories of the law," and especially the theories of Coase. (6)
Coase's work justifies the early English nuisance decisions by arguing that the law imposes liability for activities that impose net social costs if and only if the market and firms are unable to correct the resulting inefficiency because of transaction costs. (7) Yet, there are some actions that impose net social costs without subjecting the actor to common law liability. Two English legal decisions in particular established absolute exceptions to the nuisance cause of action and are counterexamples that disprove Coase's economic analysis of the common law. In 1410, Hamlyn v. More established the little-discussed competitive nuisance exception still followed today in England and the United States, and in 1596, Boulston v. Hardy established the wild-animal nuisance exception that Coase explicitly acknowledged to run counter to his economic analysis of the common law in The Problem of Social Cost. (8)
The common law nuisance exceptions established ill Hamlyn v. More and Boulston v. Hardy show that Coase's economic analysis is unsound because it yields false positives by justifying recognition of causes of action in spite of insufficient sympathy with the plight of potential plaintiffs and the perceived incapacity of legal intervention to make a difference2 Moreover, the failure of Coase's economic analysis to account for sympathy and capacity suggests it may also be incomplete. (10)
If Coase's economic analysis of the common law is neither sound nor complete--if it does not offer either the necessary or sufficient conditions for government action--his transaction-cost justification for government action should be rejected.
THREE IMPORTANT ENGLISH LEGAL DEVELOPMENTS THAT PROTECT PROPERTY USE FROM INTERFERENCE
Coase's famous article focuses on regulations designed to protect property use from interference. The importance of these regulations and the role of government as a coordinator of land use are frequently disparaged, in no small part thanks to Coase and his Nobel-winning economic analysis of common law nuisance cases in The Problem of Social Cost. (11) Robert Ellickson offers a typical example:
In the nineteenth century several million people in the Midwest coordinated their efforts and built the city of Chicago. No one supervised this achievement and no single actor had more than a small part in it. Indeed, that Chicago's growth was largely undirected likely helped it develop so quickly. (12) Perhaps the city of Chicago was built without extensive regulation and governmental land use coordination, but Ellickson's flippancy is misplaced. Today, Chicago is known as the Second City because its first iteration, built in the nineteenth century, burned to the ground. (13) Moreover, the builders of the first and second Chicagos could rely on the land use patterns and conflict-resolution norms pioneered by the builders of the city of London. And, like the nineteenth-century builders of Chicago, the eleventh- and twelfth-century builders of London watched the city burn to the ground--frequently. (14)
To stop their city from burning down every thirty years, the thirteenth-century rebuilders of London instituted the Assisa de Edificiis, a regulation mandating the use of stone in construction. (15) The Assisa de Edificiis provided both a mechanism for sharing the cost of expensive stone construction--the party wall--and a mechanism for resolving the conflicts between neighbors fueled by their resulting proximity--the formal assize procedure. (16)
The institution of the Assisa de Edificiis is one of three monumental English legal developments that afforded property users protection from interference. Around the time of the Assisa de Edificiis, new patterns of land use in rural areas created overlapping rights in land through division of ownership in the form of easements and profits. This overlap also created conflicts that required resolution. In response, the common law recognized a new cause of action to protect easements and profits from interference and disruption--the early assize of nuisance.17 The protection afforded by the early assize of nuisance soon evolved into a broader cause of action for resolving any dispute over land use interference--the modified assize of nuisance. (18)
Taken together, these three English legal developments that protect property use from interference--institution of the Assisa de Edificiis, recognition of the early assize of nuisance, and recognition of the modified assize of nuisance--provide an appropriate context for evaluating and understanding Coase's economic analysis of the common law in The Problem of Social Cost. Coase's economic analysis of transaction costs explains and justifies each of these legal decisions. This apparent analytical power is at the heart of the popularity of Coase's economic analysis of the common law in legal scholarship. Yet, as Parts III and IV will demonstrate, two English legal decisions that established absolute exceptions to the nuisance cause of action reveal that Coase's economic analysis is analytically weak and therefore worthy of rejection by legal scholars. But first, the good news for Coase.
Preventing Hazard: The Assisa de Edificiis
In response to "as many as five major conflagrations," the city of London instituted the Assisa de Edificiis (hereafter Assisa) "for settling disputes between neighbours concerning boundaries and other matters, and for encouraging the use of stone in building." (19) Reducing the frequency and spread of fires required the use of stone in building, and the expense of stone in turn necessitated the use of a single wall shared by two adjacent buildings, called a party wall. (20) As adjacent buildings were not usually built at the same time or by the same builder, party walls were designed to be built into by the neighbor at a...