Notes on Lueck on ‘First Possession’ Econ 594ER October 29, 2007

What of First Possession? The rule –Grants ownership to the party that gains control before other potential claimants It’s defenders (mostly lawyers) –Locke (1690), Blackstone (1766), Holmes (1881), Rose (1985), Epstein (1979), Lueck (1995) –Creates property rights claims that reward ‘useful’ labor It’s skeptics (mostly economists) –Haddock (1986), Barzel (1968) –Leads to wasteful ‘racing’ to claim the stock of a resource or ‘racing’ to extract or ‘capture’ flow of resource

Efficiency & Dissipation Under First-Possession The effects of the rule on efficiency are nuanced –Ownership of asset stock: land, oil reservoir, lake –Ownership of asset flow: oil brought to surface, fish that was caught Case 1: Race to establish asset ownership –Single claimant pays one-time claiming cost –Homogeneous claimants dissipate all value by claiming asset ‘too early’ –Heterogeneous claimants preserve some resource value because lower cost claimant gets resource and ends race Case 2: Race to capture asset flow –Open access – ‘tragedy of the commons’ –Common property, race is mitigated but depends on internal costs of enforcing cooperation and external costs of exclusion –Auctions – depend on costs to state of setting it up Q: Lueck says state must pay to establish property right under auction. Why can’t rents be fully realized by auctioning the right to establish property rights?

The Design of Law I Lueck asks: Do first-possession rules mitigate dissipation? What features of the rules will be observed if this is so? Case 1: Race to establish asset ownership Common principals of first-possession rules for asset claims 1.Possession is defined so that claims are made at low-cost before races begin 2.Once rights are established, they can be transferred to other users 3.The use of auctions are high cost alternatives Note: 1 and 2 seem like observable features of the law, but 3 is an assertion. Examples Land: The move to homesteading and abandonment of land sales indicate the high cost of policing land in a distant frontier. Homesteading required active tilling of land. Hard rock mining: General Mining Law of 1872 gives full transferable title to the mineral bearing land to the first discoverer of a deposit.

The Design of Law II Case 2: Race to capture asset flows Common principals of first-possession rules for asset flows 1.Open access may persist as permitted by law when resources are plentiful 2.When dissipation is severe, access is restricted via legal means etc. 3.Transfer of rights to capturable flows tend to be restricted Examples Wild Game: Ownership requires physical capture, not just ‘hot pursuit’. In the U.S., where ownership of stock is costly, access is restricted by state wildlife agencies. Oil and Gas: Under 1889 court doctrine, rights to stock of oil and gas are unclear, but rights to the flows are clear once they are on the surface. Statutory laws prevent complete open access – e.g., well-spacing requirements and coerced super-majority surface owner agreements. Q: Is the development of ITQs a counterexample to point 3 above? Q: Do these examples provide evidence in support of the model?

Summary Provides good insights as to when first-possession rules will not lead to excessive dissipation Does the discussion of law test the predictions of the model very closely?