1. Law and Economics-Charles W. Upton How Property Rights are Protected

2. Protecting Property Rights Suppose you begin to build a house on my land. The judicial system has the responsibility of protecting my property rights. But how?

3. How Property Rights are Protected Protecting Property Rights Suppose you begin to build a house on my land. The judicial system has the responsibility of protecting my property rights. But how? –Damages (Backward Relief). The court can award me damages for your construction.

4. How Property Rights are Protected Protecting Property Rights Suppose you begin to build a house on my land. The judicial system has the responsibility of protecting my property rights. But how? –Damages (Backward Relief). The court can award me damages for your construction. –Injunctions (Forward Relief). The court can forbid you to build or order you to remove any structure.

5. How Property Rights are Protected Protecting Property Rights Suppose you begin to build a house on my land. The judicial system has the responsibility of protecting my property rights. But how? –Damages (Backward Relief). The court can award me damages for your construction. –Injunctions (Forward Relief). The court can forbid you to build or order you to remove any structure. Even if the house has already been built, the injunction decision sets the stage for bargaining, which will be efficient iffi TC < IC

6. How Property Rights are Protected An Example

7. How Property Rights are Protected An Example

8. How Property Rights are Protected An Example

9. How Property Rights are Protected Three Rules The Electric Company is free to pollute The Laundry is entitled to compensation The Laundry is entitled to an injunction

10. How Property Rights are Protected Three Rules The Electric Company is free to pollute The Laundry is entitled to compensation The Laundry is entitled to an injunction Lets see what happens under these three rules, assuming initially that they cannot bargain.

11. How Property Rights are Protected Electric Company Free to Pollute There will be no side payment, and we will end up here.

12. How Property Rights are Protected Laundry is Entitled to Compensation If L is entitled to compensation, E will pollute, and pay $200 to L, who will not install filters. Total benefit = $1100.

13. How Property Rights are Protected Entitled to Compensation Why $200? With a scrubber,π L =300; without a scrubber π L =$100, or $200 less.). If L is entitled to compensation, E will pollute, and pay $200 to L, who will not install filters. Total benefit = $1100.

14. How Property Rights are Protected Laundry is Entitled to an Injunction If L is entitled to an injunction, E will install a scrubber and L will not install filters. Total benefit = $800.

15. How Property Rights are Protected Three Rules The Electric Company is free to pollute The Laundry is entitled to compensation The Laundry is entitled to an injunction If they cannot bargain, Rule 1 is preferable. But lets see what happens if they can bargain.

16. How Property Rights are Protected Three Rules The Electric Company is free to pollute The Laundry is entitled to compensation The Laundry is entitled to an injunction If they cannot bargain, Rule 1 is preferable. But lets see what happens if they can bargain. If TC =0, the choice of rule is irrelevant, only determining who gets the money.

17. How Property Rights are Protected Gains from Bargaining

18. How Property Rights are Protected Gains from Bargaining Under Rule 1, we end up at the best solution without bargaining.

19. How Property Rights are Protected Gains from Bargaining Under Rules 2 or 3 there are gains from bargaining.

20. How Property Rights are Protected Lubricating the Bargaining Suppose TC  0 and the laundry has a right to clean air. Damages or Injunction?

21. How Property Rights are Protected Lubricating the Bargaining Suppose TC  0 and the laundry has a right to clean air. Damages or Injunction? Play Solomon. Issue the injunction and really lubricate the bargaining

22. How Property Rights are Protected Lubricating the Bargaining Suppose the laundry has a right to clean air and TC>0. Damages or Injunction?

23. How Property Rights are Protected Lubricating the Bargaining Suppose the laundry has a right to clean air and TC>0. Damages or Injunction? If TC > IC, then Damages

24. How Property Rights are Protected The Misplaced House I build my house two feet over my neighbor’s property line. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC?

25. How Property Rights are Protected The Misplaced House I build my house two feet over my neighbor’s property line. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC? Common sense says the house should stay, but we want to lubricate the bargaining

26. How Property Rights are Protected The Errant Satellite A satellite crosses over the boundary of another satellite and interferes with that person’s broadcasting. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC?

27. How Property Rights are Protected The Gas Line A landowner's right to exclude a neighbor’s gas line. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC?

28. How Property Rights are Protected The Defective Transmission A new car owner’s right to have the defective transmission replaced by the seller. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC?

29. How Property Rights are Protected The Defective Transmission A new car owner’s right to have the defective transmission replaced by the seller. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC? Here you may want to give damages to avoid flood of lawsuits

30. How Property Rights are Protected The Polluter A right to be free from air pollution by a nearby factory. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC?

31. How Property Rights are Protected The Polluter A right to be free from air pollution by a nearby factory. Do we want injunctive relief or damages? Property Right is Clear but: TC > IC? The negotiations between thousands of neighbors and the plant could be very costly

32. How Property Rights are Protected End ©2004 Charles W. Upton