INCENTIVE-COMPATIBILITY AND COASEAN INVARIANCE IN PROPERTY AFFAIRS

Abstract

1. IntroductionLegal rules about bundles of rights (or property law) are answers to questions such as those raised by Cooter and Ulen (p. 71): How are ownership rights established? What can be privately owned? What may owners do with their property? What are remedies for violation of property rights? Answers (legal rules) are drafted subject to, primarily, various philosophical constraints as well as security and economic pragmatism.Property law is influenced by philosophical views. According to liberal philosopher John Rawls, as explained by Sen (p. 12), we ought to desire to establish institutions, firmly chosen for basic structure of society (which) would demand one specific resolution of principles of but he does not explain the difficulties in arriving at a unique set of principles to guide institutional choice. Sen questions this Rawlsian notion of transcendental institutionalism and he doubts that it is either possible or essential; in turn, he states that there is simply a plurality of philosophical principles (not only Rawls's liberal principles) that justify conflicting property claims.1 As stated by Cooter and Ulen (pp. 107-110), property has capability to advance, among other, utilitarianism, justice, liberty and selfexpression. More specifically,On utilitarian grounds, it can be taken from (a person) in principle if beneficiaries of expropriation gain more in utility than owner loses.On distributive justice grounds, in Aristotle's conception, aristocrats use (wealth) for more worthy ends than do others. (Therefore), redistribution of property would favor rich and penalize poor. ... Another school of philosophical thought ... emphasizes a just process for defining and enforcing property rights rather than a just outcome.On liberty grounds, private property has ... been viewed by some philosophers as a bulwark against dictatorial authority of governments ... The U.S. Constitution was probably drafted with this idea in mind.On self-expression grounds, artist transforms natural objects and makes them artist's own. ... Creators' rights of ownership ... (extend) beyond art to most of works of humans.On natural selection grounds, Eswaran and Neary (2014, p.206), demonstrate that, given evolutionarily stable preferences, producers value output more than interlopers do. In this way, natural selection hardwires attachment to fruits of one's own labor more than attachment to fruits of someone else's labor. The asymmetry in valuation arises because of asymmetric role of contesting individuals in production of output. Asymmetric valuation generates an innate enforcement mechanism whereby a producer would spend more effort in defense of his output than would an interloper in its attempted appropriation. As same authors state (p. 221), their setting provides an evolutionary basis for both doctrine of first possession and Locke's labor theory of property rights, which are crucial ingredients of philosophical and legal approaches to property rights.Property law violations (dubbed negative externalities) are present whenever well-being of consumers or production possibilities of firms are negatively affected by actions of other agents in society. Negative externalities give rise to market failure (which may be corrected through imposition of standards, taxation and bargaining between parties involved) and they may range from, among other, bilateral to multilateral and from intellectual to pollution (e.g., environmental, noise, and aesthetic) or from positional to those that involve informational asymmetry. Several specific case examples are instructive.The often-cited case of Pierson v. Post, 2 Am. Dec. 264 (N.Y. 1805) illustrates an archetypal bilateral dispute. There, Supreme Court of New York resolved that in order to own an animal, you must physically possess it. …