Music: The Beatles: Magical Mystery Tour (1967) Lunch & Office Hours Today Cancelled; I’ll lunchers about rescheduling Lunch Tomorrow 12:25 on Bricks: Barker, Desai, Koslow; Parkins; Uhlman; Wales; Wytrykusz

Friday: New Issue in Mullett: Escape Generally: When Does Owner of Escaped Animal Lose Property Rights? –Why Different from Watch or Ring? –What Facts are Relevant?

Friday: New Issue in Mullett: Escape Different from First Possession (Where All 3 Cases Ask Similar Qs) Escape Cases Focus on Different Concerns –Mullett: Applies English Common Law Rule –Manning: Fact-Specific Result Not Using English Common Law Test

LAST TIME: Phosphorus: DQ28 Assume that we are in a world where the net- owners have no enforceable rights in fish caught in their nets until they physically remove the fish from the nets. Thomas chooses to take fish from the owners’ nets. Who is affected by this decision?

EXTERNALITIES Cost or benefit external to a decision- making process –Must be w reference to particular decision –helpful to start by identifying decision maker

EXTERNALITIES Cost or benefit external to a decision- making process –Must be w reference to particular decision –helpful to start by identifying decision maker If decision-maker considers a cost, but chooses to absorb it, not an externality –E.g., Thomas considers own exertion necessary to take from nets, may decide to take anyway

EXTERNALITIES Likely Externalities in DQ28 Shaw hypo?: Whose interests can Thomas ignore? PHOSPHORI?

EXTERNALITIES Likely Externalities in DQ28 Shaw hypo: –Costs to net-owners & their families –Loss of availability to purchasers from net- owners –Effects on net manufacturers –Effects on fish & food chain (might be benefits if net-fishing discouraged)

EXTERNALITIES “Internalizing” Externalities: Forcing Decision-Maker to Consider

EXTERNALITIES “Internalizing” Externalities: Forcing Decision-Maker to Consider DQ30 (Zinc): Examples of Internalizing from Outside Reading?

EXTERNALITIES “Internalizing” Externalities: Forcing Decision-Maker to Consider Beneficial Because Means Price of Activities Will Reflect Real Cost (e.g., pollution costs)

EXTERNALITIES “Internalizing” Externalities: Forcing Decision-Maker to Consider Beneficial Because Means Price of Activities Will Reflect Real Cost Can Internalize Several Ways –Require Payment of Damages –Criminalize Activity –Private Negotiation (Bribes)

Phosphorus: DQ28 If the fish are worth more to the net-owners than to Thomas, presumably there is some amount of money they could contract to pay him to leave the fish alone that would leave all parties better off than before the contract. What obstacles stand in the way of the parties entering this contract?

Phosphorus: DQ28 What obstacles stand in the way of the parties entering this contract? Assume cost to net-owner is $500/wk & benefit to Thomas is $300/wk. Assume One-on-One Negotiation.

Costs of One-on-One Negotiation Investigation Costs Bargaining Costs Strategic Behavior Enforcement Costs

Phosphorus: DQ28 What obstacles stand in the way of the parties entering this contract? Assume cost to net-owner is $500/wk & benefit to Thomas is $300/wk. Assume Multi-Party Negotiation.

Additional Costs of Multi-Party Negotiation Free-Riding Holdouts Organization/Management Costs

Collectively: “Transaction Costs” Investigation Costs Bargaining Costs Strategic Behavior Enforcement Costs Free-Riding Holdouts Organization/Manag ement Costs

Transaction Costs Can Prevent Parties from Reaching Bargains that are “Efficient” (= Would Make Everyone Better Off)

DQ32: Costs of Internalization? costs of bargaining privately costs of collectively creating new rules (can be very expensive) –multi-party negotiation –legislation

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue Identify old rule

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue Identify old rule Identifyneg. externalities under old rule

Basic Demsetz Analysis: 1 st Thesis If cost of externalities > cost of change  change in rule

Basic Demsetz Analysis: 1 st Thesis If cost of externalities > cost of change  change in rule –Rough Approximation (Not Precise Math)

Basic Demsetz Analysis: 1 st Thesis If cost of externalities > cost of change  change in rule –Rough Approximation (Not Precise Math) –Resulting Change in Rule Unpredictable

ZINC: DQ31 Why does the author believe that new property rights tend to arise from “the emergence of new or different beneficial and harmful effects”? (p.26)

Basic Demsetz Analysis: 1 st Thesis If cost of externalities > cost of change  change in rule –Rough Approximation (Not Precise Math) –Resulting Change in Rule Unpredictable –Often Results from Social/Cultural Change New Social Habits  Scarcity New Science/Technology  Scarcity or Better Monitoring

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities?

Basic Demsetz Analysis: 1 st Thesis Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

Demsetz 1 st Thesis: Shaw Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

DQ33: Calcium: Apply to Montagne Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule