Comments on Haddock “First-Possession versus Optimal Timing” Nick Parker Econ 594ER October 29, 2007

Introduction Argues that doctrine of first-possession is flawed on economic grounds Argues –When first-possession yields economic rents, there will be a race –Interesting issues raised by Epstein are in sorting out when first- possession makes sense economically. When it doesn’t, which modifications might be made? –Empirically, modified versions of first-possession are prevalent, and can be found in patent and copyright branches of law.

The Premature Occupation Arguments Awarding entitlements by first possession leads to premature possession – which is suboptimal because resources used to possess have alternative uses At the margin, expenditures to capture title will equal the value of the asset being sought Race to capture will occur whenever the asset is 1.valuable 2.unclaimed 3.available to the first possessor

The Premature Occupation Model & Monopoly There is fixed amount of input (x-axis) Too little input is used by monopoly in figure 1 In figure 2, VMP(west) is shifting up over time All inputs should remain in East, but first-possession gives rise to speculation and dissipation of shaded area

Optimal Timing First-possession rule draws resources from optimal uses too early Setting: –Land in west is becoming more valuable –To take up land in west, eastern farms must make investments thereby using resources that have alternative value –Key result is that first-possession leads to premature investment at t(z)

Alternatives to 1 st -Possession Sovereign’s title with auctions –Ownership retained by state and auctioned off when rights are valuable –Individuals are encouraged to use private knowledge –Auction may not be practical because prior definition not always possible Temporally limited title –This lowers incentives to race for ownership and reduces some of the race Q: When is first-possession more economical than auctions or temporally limited title? See Lueck.