DEMSETZ FIRST THESIS: (Not shown in class) DQ1 DEMSETZ FIRST THESIS: (Not shown in class) DQ1.36(a) (Pollution Controls) Decision/activity at issue: Manufacturing that pollutes air/water; cars Old rule: Very Limited Tort Liability for Factories (needed odors or visible smoke); No regulation of gasoline content or auto emissions Externalities?:

Externalities?: Costs to Environment & Human Health (Huge by 1970) DEMSETZ FIRST THESIS: (Not shown in class) DQ1.36(a) (Pollution Controls) Decision/activity at issue: Manufacturing that pollutes air/water; cars Old rule: Very Limited Tort Liability for Factories (needed odors or visible smoke); No regulation of gas content or auto emissions Externalities?: Costs to Environment & Human Health (Huge by 1970) Change in circumstances: Post-War economic boom + suburbs  more cars/driving; more factories. New technology  better measurement of pollution & effects. What happens?

Big increase in neg. externalities (both harm & perception) DEMSETZ FIRST THESIS: (Not shown in class) DQ1.36(a) (Pollution Controls) Decision/activity at issue: Manufacturing that pollutes air/water; cars Old rule: Very Limited Tort Liability for Factories (needed odors or visible smoke); No regulation of gas content or auto emissions Externalities?: Costs to Environment & Human Health (Huge by 1970) Change in circumstances: more cars/driving; more factories. New technology  better measurement of pollution & effects. Big increase in neg. externalities (both harm & perception) If cost of externalities > cost of change  change in rule (Clean Air Act; Regulation of Gasoline & Auto Emissions)

Weasel Assignment Questions I’ll Take Qs in Class Today & Thursday 9/19 Thursday 9/26 I’ll Take Qs By E-Mail or in Person until 3:30 pm on Wed 10/2 QUESTIONS?

MUSIC (to accompany Manning): Tchaikovsky, Symphony #4 (1880) Recording: Berlin Philharmonic (2003) Conductor: Von Karajan Lunch Today Meet on Brix @ 12:25 Goodman Hampson * Hyland Karam * Roig Shapiro URANIUM Mullett Brief: Due Thur Sep 19 @ 9pm KRYPTON Albers Brief: Due Mon Sep 23 @ 9 pm

Uranium: Start of Brief Manning v. Mitcherson Introduction: Uranium: Start of Brief Oxygen: DQ 1.43 & 1.44

in a small town in Georgia there lived Manning v. Mitcherson Once Upon a Time in a small town in Georgia there lived Two Canary Birds …

Manning v. Mitcherson Both escaped One of the escaped Canary Birds flew into Mr. Brown’s kitchen. Mr. Brown gave it to the Mannings. The Mannings refused Mrs. Mitcherson’s request for the bird. Mrs. Mitcherson sued

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) The parties initially disagreed as to whether the bird found in Brown’s kitchen was “Sweet” or “Sour.” Whose version of the facts did the magistrate accept?

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) Magistrate/Justice of Peace Rules in Favor of P Mitcherson. Ga SCt.: “The answer of the ex-officio justice of the peace in this case, the same being a certiorari and no traverse thereof, must be taken as true, ...” “no traverse thereof” Means here?

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) “The answer of the ex-officio justice of the peace in this case, the same being a certiorari and no traverse thereof, must be taken as true, ...” “no traverse thereof”  no objection/rebuttal made Answer must be “taken as true “ = Justice/Magistrate’s factual findings not Q’ed. “Taken as true” about facts not law Ga SCt wouldn’t defer to legal holding of Magistrate

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) Justice’s answer must be “taken as true “ = Justice/Magistrate’s Factual findings not Q’ed. So what are facts for purposes of the case?

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) Facts for purposes of the case = Plaintiff’s Version = Canary in Browns’ Kitchen was “Sweet” So What is Defendant’s Legal Claim on Appeal?

Manning v. Mitcherson: DQ1.43: Oxygen (What’s at Issue?) Defendant’s Legal Claim Not “It’s My Bird” (No Traverse) Not “It Was Never Her Bird” (2 Years In Cage,) Must Be: “She Lost Property Rights When It Escaped” (Despite court repeatedly referring to “creation” of rights).

Manning v. Mitcherson: BRIEF: Uranium STATEMENT OF THE CASE: Mitcherson … ? sued Manning, … [theory of case] [remedy requested]

Manning v. Mitcherson: BRIEF: Uranium STATEMENT OF THE CASE: Mitcherson, original owner (OO) of escaped canary sued Manning, … ? [theory of case] [remedy requested]

Manning v. Mitcherson: BRIEF: Uranium (STATEMENT OF THE CASE) Mitcherson, OO of escaped canary sued Manning, who was given the bird by its finder, [theory of case] = under a “possessory warrant” (= summary action for return of personal property) [remedy requested]

Manning v. Mitcherson: BRIEF: Uranium (STATEMENT OF THE CASE) Mitcherson, OO of escaped canary sued Manning, who was given the bird by finder, under a possessory warrant not “conversion” b/c not asking for $$ not crazy to say “replevin” but poss. warr. appears to be its own cause of action in Ga. [Can do replevin if you say “possibly” or “presumably” to show uncertainty] [remedy requested]?

Manning v. Mitcherson: BRIEF: Uranium (STATEMENT OF THE CASE) Mitcherson, OO of escaped canary sued Manning, who was given the bird by finder, under a possessory warrant … For return of the bird. (Sweet!!)

Manning v. Mitcherson: BRIEF: (Uranium) PROCEDURAL POSTURE?

Manning v. Mitcherson: BRIEF: (URANIUM) PROCEDURAL POSTURE After a trial, the magistrate awarded possession to the Plaintiff. Need to include “After a trial” to clarify not decided: on pleadings (like Pierson) on Directed Verdict (like Liesner & Shaw) Defendant brought a writ of certiorari to Superior Court, which affirmed [by dismissing the writ]. Defendant “excepted” [appealed].

Manning v. Mitcherson: DQ1.44: OXYGEN (What’s at Issue?) Why Do You Think This Case Got to Georgia Supreme Court???!!! Why did the Mannings Keep Fighting? Why did Mrs. Mitcherson?

Manning v. Mitcherson: Hints about Mrs. Mitcherson Georgia treats husband as relevant party to lawsuit if both spouses alive. Mr. Manning is the only Defendant, even though pretty clearly his wife’s bird. Mr. Mitcherson not a party. Why not?

Manning v. Mitcherson: Hints about Mrs. Mitcherson Mr. Mitcherson not a party. Why not? Divorce unusual in 1882; likely he’s dead. High probability she’s a Civil War widow If so, husband dead at least 17 years.

Manning v. Mitcherson: Hints about Mrs. Mitcherson High probability she’s a Civil War widow If so, husband dead at least 17 years. Enter the Captain & the Canary!!

Manning v. Mitcherson: BRIEF ISSUE (Procedural Component): Did the magistrate err in awarding possession of the canary to the original owner … OR Did the Superior Court err by affirming the judgment of the magistrate awarding possession of the canary to the original owner … (Substantive Component?)

Manning v. Mitcherson: FROM DQ1.43: (What’s at Issue?) Defendant’s Legal Claim Not “It’s My Bird” (No Traverse) Not “It Was Never Her Bird” (Years In Cage) Must Be: “She Lost Property Rights When It Escaped” NOTE Substantive Component must be framed as a legal rule: [Legal result] occurs where [facts].

Manning v. Mitcherson: ISSUE Did the magistrate err in awarding possession of the canary to the original owner … because an OO loses [or retains] property rights to an escaping canary where [facts: see list in 2d paragraph on p.40]. For next class, Uraniums & Radiums should prepare based on what we’ve identified today as contested issue and relevant facts.

Manning v. Mitcherson: FACTS & NARROW HOLDING The original owner retains property rights in an escaped [canary] … [that responded to its name] [that had escaped and returned once before] [that had distinctive crest] [that had been owned for two years] [that had been missing for only five days] [that OO located day after it was found]

McKinley v. Ford The Case of the Wounded Wolverine

DF Scheduling & Wolverine 1st Possession Issue Wed 9/18 (Brendan)  Arguments re Mortal Wounding & Pursuit  Arguments re "Reasonable Precautions to Prevent Escape" Thu 9/19 & Mon 9/23 (Lauren)  Arguments re [Substantial Permananent] Deprivation of Natural Liberty Arguments re Application of Policy of Rewarding Useful Labor

DEMSETZ BASIC CONCEPTS (Radium Cont’d)

INTERNALIZING EXTERNALITIES (RECAP) Changing Rules, Laws or Circumstances to Force Decision-Maker to Take External Costs or Benefits Into Account Generally Imposed from Outside; Not Done by Decision-Maker (Contrast “Internalizing” in Psychology)

NTERNALIZING EXTERNALITIES (RECAP) Changing Rules, Laws or Circumstances to Force Decision-Maker to Take External Costs or Benefits Into Account. Generally Imposed from Outside. Beneficial Because Means Price of Activities Will Better Reflect Real Costs & Benefits Pollution Costs  Damages & Regulation Charitable Services  Subsidies/Gov’t Operation

INTERNALIZING EXTERNALITIES Changing Rules, Laws or Circumstances to Force Decision-Maker to Take External Costs or Benefits Into Account; Generally Imposed from Outside. Several Ways to Do: Require Payment of Damages or Fees (or Subsidize) Regulate Activity: Criminalize or Limit (or Require) Private Negotiation (“Bribes” to Do or Not Do Activity) (BUT Usefulness Limited by Transaction Costs)

DEMSETZ ARTICLE DQ1.31: Radium Examples of internalizing externalities from outside the reading?

DEMSETZ FIRST THESIS (Descriptive)

DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.”

DEMSETZ 1st THESIS: DQ1.33 New ppty rts tend to develop “when the gains of internalization become larger than the cost of internalization.” Gains = Having more effects considered by decision-maker, presumably leading to: Reduction in harmful effects AND/OR Increase in beneficial effects Maximum Potential Gain = Total elimination of externalities (unlikely)

What are relevant “costs”? DEMSETZ 1st THESIS: DQ1.33 New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” What are relevant “costs”? Focus on people who might want to change the game (force internalization), not on decision-maker who is source of externalities.

DEMSETZ 1st THESIS: DQ1.33 New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” What are relevant “costs”? Costs of bargaining privately Costs of collectively creating new rules (can be expensive) Multi-party negotiation Legislation or agency regulation

If harm from externalities > cost of change  change in rule. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If harm from externalities > cost of change  change in rule.

DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” = If cost of externalities > cost of change  change in rule Rough Approximation (Not Precise Math)

DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” = If cost of externalities > cost of change  change in rule Rough Approximation (Not Precise Math) Resulting Change in Rule Unpredictable E.g., Legislature responding to public outcry must do something Lots of possibilities; legislators might not make good choices

DEMSETZ FIRST THESIS DQ1.32 Why does the author believe that new property rights tend to arise from “the emergence of new or different beneficial and harmful effects”? (p.31) Increase in (perceived) cost of status quo needed to overcome inertia stemming from cost of change.

If cost of externalities > cost of change  change in rule DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If cost of externalities > cost of change  change in rule Often Results from Social/Cultural Change New Social Habits  Value Change  Scarcity New Science/Tech.  Scarcity or Better Monitoring

DEMSETZ FIRST THESIS: DQ1.34-1.36 Basic Analysis: ME & Oxygen Identify decision at issue Identify old rule Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

Oxygen : DEMSETZ FIRST THESIS: Basic Analysis: State v. Shaw Identify decision at issue: Thomas: Do I take fish? Identify old rule Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS DQ1.34(a) (MONTAGNE) : Oxygen Identify decision/activity at issue: Individuals in tribe deciding whether to kill beavers. Identify old rule Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS DQ1.34(a) (MONTAGNE) : Oxygen Tribe-members killing beavers; RULE = no limits except First-in-Time Identify negative externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS DQ1.34(b) (MONTAGNE) : Oxygen Tribe-members killing beavers; RULE = no limits except First-in-Time Neg. Ext. = Possibility of Overhunting (Slim) Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS DQ1.34(b) (MONTAGNE) : Oxygen Tribe-members killing beavers; RULE = no limits except First-in-Time; Neg. Ext. = Possibility of Overhunting (Slim) French Arrive; Beaver Hats = Fashion; Price of Pelts Increases; Hunting Increases How does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : Oxygen Tribe-members killing beavers; RULE = no limits except First-in-Time; Neg. Ext. = Possibility of Overhunting (Slim) French Arrive; Price of Pelts Rises  Both Cost & Likelihood of Overhunting Increase What happens next?

DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : Krypto Oxygen n French Arrive; Price of Pelts Rises  Both Cost & Likelihood of Overhunting Increase Tribe Develops Property Rights System Must have invoked decision-making system Decided on new rules & mechanisms to implement [Incurring Transaction Costs associated with change]

DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : Oxygen Tribe Develops Property Rights System Incurring Transaction Costs Associated with Change Can Explain Under Demsetz First Thesis: Big Change in Value of Pelts Perceived Costs of Potential Overkilling Increase Become Greater than Costs of Change Leading to Change in Rule

DEMSETZ FIRST THESIS DQ1.35: Oxygen Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system for rights to Buffalo similar to the one the Montagne for rights to beavers?

DEMSETZ FIRST THESIS DQ1.35: Krypton Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne? No Scarcity Issue Little Value to Outsiders Vast Herds of Buffalo Beavers Dam BUT Buffalo “Roam” (Harder/More Expensive to Create Exclusive Property Rights)

DEMSETZ FIRST THESIS: DQ1 DEMSETZ FIRST THESIS: DQ1.36 (b) DEVELOPMENT OF LEGAL CLAIMS RE SEXUAL HARASSMENT Decision/activity at issue: Male bosses demand sex from women as job condition Old rule: Legal/No Liability Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities [or perception of harms]? If cost of externalities > cost of change  change in rule

DEMSETZ FIRST THESIS: Basic Analysis Identify decision at issue Identify old rule Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities [or perception of harm]? If cost of externalities > cost of change  change in rule We’ll Come Back to Repeatedly in Later DQs. Be certain you understand steps (or ask Qs outside of class).

DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” Useful description of how legal change can occur. Going forward, can use to argue that legal change should occur b/c social changes have greatly increased negative externalities.

Questions? DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” Useful description of how legal change can occur Can use to argue that legal change should occur Questions?

DEMSETZ SECOND THESIS DQ1.37-1.40

DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and Stronger Private Property Rights

DEMSETZ SECOND THESIS As Opposed to What? Over Time, Process Described in 1st Thesis Leads to More and Stronger Private Property Rights As Opposed to What?

DEMSETZ SECOND THESIS DQ1.37 Alternatives to Private Property State of Nature: (Can Use Power/Force to Exclude Others) Common Law re Rights among Family Members Fairly Uncommon Today w/in U.S. Not Uncommon in Int’l Settings

DEMSETZ SECOND THESIS DQ1.37 Alternatives to Private Property State of Nature: (Can Use Physical Force to Exclude) Communal Ownership No one can exclude others completely In practice, often variants of First in Time Common Examples Access to Public Streets, Public Parks, Beaches, etc. Use of Oxygen in Air; Use of Water from Public Sources

DEMSETZ SECOND THESIS DQ1.37 Alternatives to Private Property State of Nature: (Can Use Force to Exclude) Communal Ownership (Can’t Exclude/1st-in-Time) Can Have Non-Communal State Ownership Like Private Property BUT Gov’t Management E.g., Military Bases; Limited Access National Parks

DEMSETZ SECOND THESIS: DQ1.37 Gradations of Private Property  Communal : Examples (Pretty Strong Private Rights) (1) Songs under copyright: Can’t perform for $$ or copy text w/o permission/$$ Can’t limit singing in shower, etc. (2) Right to Exclude Others from Privately Owned Land Can exclude most people for most purposes Limits on right to exclude for public necessity (emergencies; stop crime, etc.)

DEMSETZ SECOND THESIS: DQ1.37 Gradations of Private Property  Communal : Examples (Pretty Weak Private Rights) (1) Perfumes, Clothing Designs: Anyone can copy formula/design & sell Can’t lie about source (private property in trademark). (2) Air Generally anyone can use oxygen, nitrogen, etc. Some limits on use if user creates identifiable pollution

Demsetz: Private Property More Efficient Than Communal Property DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and Stronger Private Property Rights Why? Demsetz: Private Property More Efficient Than Communal Property

DEMSETZ SECOND THESIS: DQ1.38 Private Property More Efficient Than Communal Property (Results in Fewer Externalities) Members of community will have trouble negotiating to achieve optimal level of resource use. Claim: Private Os more likely to manage resource in way to maximize long term benefits. In communal or state, no individual reaps benefits of good management, so have to do difficult group negotiation to get everyone to agree to steps needed to achieve optimum. (High transaction costs)

DEMSETZ SECOND THESIS: DQ1.38 Private Property More Efficient Than Communal Property (Results in Fewer Externalities) 2. The members of the community will have trouble negotiating with other communities or outsiders: to prevent interference with community’s rights to achieve useful bargains

DEMSETZ SECOND THESIS: DQ1.38 Private Property More Efficient Than Communal Property (Results in Fewer Externalities) The members of the community will have trouble negotiating with other communities or outsiders: Standard problems of group bargaining Plus difficulty of figuring out who to bargain with (Who do I talk to if I want to buy up all the oxygen or to prevent some people from overusing oxygen?)

DEMSETZ SECOND THESIS: DQ1.39 Demsetz: Private Property More Efficient Than Communal Property: Reasons to Question Claim (I’ll add slides on this topic; can ask Qs outside of class or by e-mail)

Assuming Private Property Results in Fewer Externalities … DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and More Private Property Assuming Private Property Results in Fewer Externalities …

DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and More Private Property If Externalities High Change in Rule

DEMSETZ SECOND THESIS If Externalities High Change in Rule Over Time, Process Described in 1st Thesis Leads to More and More Private Property If Externalities High Change in Rule Rule Changes Unpredictable

DEMSETZ SECOND THESIS If Externalities High Change in Rule Over Time, Process Described in 1st Thesis Leads to More and More Private Property If Externalities High Change in Rule Rule Changes Unpredictable If to Private Property, Low Externalities = Stable

DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and More Private Property If Externalities High Change in Rule Rule Changes Unpredictable If to Private Property, Low Externalities = Stable If not, Higher Externalities  More Change

QUESTIONS? DEMSETZ SECOND THESIS Over Time, Process Described in 1st Thesis Leads to More and More Private Property If Externalities High Change in Rule Rule Changes Unpredictable If to Private Property, Low Externalities = Stable If not, Higher Externalities  More Change Downloading Music as Example QUESTIONS?

DEMSETZ: WHAT TO TAKE AWAY Externalities = Important Idea Very Commonly Referenced Concept Want Decision-Makers to Consider Real Costs

DEMSETZ: WHAT TO TAKE AWAY Externalities Important 1st Thesis: Useful Description of How Changes in Society Can Create Changes in Property Rights Can also use to argue change is needed b/c of high externalities

DEMSETZ: WHAT TO TAKE AWAY Externalities Important Useful Description of a Way Changes in Society Create Changes in Property Rights Arguments re Advantages of Private Property (or of Stronger Private Property Rights)

DEMSETZ: WHAT TO TAKE AWAY ALSO (though we didn’t spend time on): 1st para. of Excerpt: Description of “Property” Expectations re Rights to Act Protection from Others’ Interference Construct of Particular Society/Culture

DEMSETZ: WHAT TO TAKE AWAY What Counts as Property = Construct of Particular Society/Culture

DEMSETZ SECOND THESIS: DQ1.39 Demsetz: Private Property More Efficient Than Communal Property: Reasons to Question Claim May understate ease & effectiveness of social sanctions/ ostracism/self-help as ways for communities to regulate behavior w/o negotiation. E.g., Law school sections Fast food containers (social media eliminatedmost Styrofoam) Celebrities, NFL & Twitterverse

DEMSETZ SECOND THESIS Private Property More Efficient Than Communal Property (Reasons to Q Claim) May understate effectiveness of social sanctions Not always clear that private property yields better management. Individuals … may be irrationally wasteful may sacrifice long term value for short term gains may rationally place low value on consequences in distant future (time value of money)

DEMSETZ SECOND THESIS Private Property More Efficient Than Communal Property (Reasons to Q Claim) May understate effectiveness of social sanctions Not always clear that private property yields better management Individuals may not value future benefits highly Sometimes concerned community (e.g., re children or future generations) can do better job planning for future E.g., National Parks

DEMSETZ SECOND THESIS Private Property More Efficient Than Communal Property (Reasons to Q Claim) DQ1.40: If bargaining among community is so difficult, how do private property systems get created? Shows some group negotiation possible Although Demsetz would say overcoming high transaction costs very hard so only occurs if perceived costs of retaining status quo very high