Music: The Mamas and the Papas: Greatest Hits ( ) Aluminum: Mullett Briefs Face Down on Table Updated Assignment Sheet Posted Radium: Manning Briefs Now Due Friday Lunch Tuesday: BOYNE; EPSTEIN; MARGOLIS; McCARTHY; SCHWARZBERG; SEARNS; SHAFRIR

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?

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

OXYGEN: 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 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: –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 (Krypton): 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 Negotiotiation (Bribes)

OXYGEN: 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?

OXYGEN: 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

OXYGEN: 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

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

DQ33: Uranium: 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

DQ34: Uranium Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne?

DQ35: Uranium: Apply to Development of Air Pollution Regs 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

DQ35: Apply to Development of Sexual Harassment Regs 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 Second Thesis Over Time, Process Described in 1 st Thesis Leads to More and More Private Property

Alternatives to Private Property State of Nature: (Can Use Power to Exclude) Communal Ownership –No one can exclude others –Often Variants on First in Time in Practice Can Have Non-Communal State Ownership –e.g., Military Bases –Like Private Ppty BUT Gov’t Management

Alternatives to Private Property State of Nature: (Can Use Power to Exclude) Communal Ownership –No one can exclude others –Often Variants on First in Time in Practice Can Have Non-Communal State Ownership –e.g., Military Bases –Like Private Ppty BUT Gov’t Management DQ36: Radium: Common Examples?

Demsetz: Private Property More Efficient Than Communal Property The members of the community will have trouble negotiating among themselves to achieve the optimal level of use of the resource.

Demsetz: Private Property More Efficient Than Communal Property The members of the community will have trouble negotiating among themselves to achieve the optimal level of use of the resource. The members of the community will have trouble negotiating with other communities or outsiders to prevent interference with their rights and achieve useful bargains about allocating property rights.

Demsetz: Private Property More Efficient Than Communal Property The members of the community will have trouble negotiating among themselves to achieve the optimal level of use of the resource. The members of the community will have trouble negotiating with other communities or outsiders to prevent interference with their rights and achieve useful bargains about allocating property rights. DQ37: Radium: Examples?

Demsetz Second Thesis Over Time, Process Described in 1 st Thesis Leads to More and More Private Property

DQ38: RADIUM In your experience, do communities have ways of preventing anti-community behavior aside from bargaining or paying off the anti- social community members? Examples?

DQ38: RADIUM If bargaining among members of a community is so difficult, how do private property systems get created at all?

WHAT TO TAKE FROM DEMSETZ Externalities Important (Want Decision- Makers to Consider Real Costs)

WHAT TO TAKE FROM DEMSETZ Externalities Important Useful Description of a Way Changes in Society Create Changes in Property Rights

WHAT TO TAKE FROM DEMSETZ Externalities Important Useful Description of Changes in Property Rights Arguments re Advantages of Private Property

WHAT TO TAKE FROM DEMSETZ Externalities Important Useful Description of Changes in Property Rights Advantages of Private Property Description of What Property Is (1 st para.) –Expectations re Rights to Act –Protection from Others’ Interference –Construct of Society/Culture