Reconsidering the Dual Nature of Property Rights: Personal Property and Capital in the Law and Economics of Property Rights

Abstract

In the last two decades, a renewed interest in property rights have challenged the accepted interpretation of property rights as “bundle of rights” over the use of things and have rehabilitated the old classical interpretation of property rights as exclusive (absolute) dominium over things rooted in the right to exclude. This paper provides a three-dimensional framework for the study of property rights and shows that, historically, the reason for this dual nature of property rights derives from the fact that properties can either be treated as personal property, or capital. While the classical approach is consistent with the former interpretation, the neoclassical (“bundle of right”) approach is consistent with the latter. By reinterpreting the dual nature of property rights as a dichotomy between capital and personal property the paper links the dual nature of property rights to the dual nature of value: while the classical theory of property rights over personal properties derives from the classical theory of use-value, the neoclassical theory of property rights over capital derives from a theory of property rights linked to exchange-value. The work makes two main contributions to the debates in the legal and economic literature. First, it re-evaluates and justifies the interpretation of property rights as a “politically-embedded” bundle of right provided by legal realist, old progressive and institutional economists at the turn of the twentieth century. Second, it reassesses the conclusions reached by the Coasean legacy in law and economics; the paper shows that transaction costs are necessary and sufficient to explain the emergence and the form of legal institutions only in pure capitalistic societies, but cannot explain the emergence and the nature of legal institutions whenever personal properties are involved. Additional normative assumptions explaining the origin and the legitimacy of value judgments are needed to understand and explain the dual nature of property rights and to make sense of the decisions to employ personal properties as capital (or vice versa). This highlights the often neglected (but decisive) role played by the rationality assumption in legitimizing the normative conclusions reached by Coasean law and economics (and welfare economics more generally). It also highlights that the normative power of transaction costs is always institution-determined (socially-embedded), never institution-determining.