Natural Property Rights: A VC Preview

I’m blogging this week about my new book Natural Property Rights, published with Cambridge University Press.

Today, I’ll cover the right to use property. I’ll illustrate with servitudes, and the common law use rights owners rely on when they create servitudes and assign them away. Since many professors associate nuisance law with law and economic analysis, I’ll contrast rights-based and economic analyses of nuisance here.

Imagine that three neighbors own adjacent lots on a street in an unzoned residential neighborhood. Al’s lot comes first, then Becky’s, then Cassie’s. Becky owns and lives in a residential house. Al’s lot is vacant at first, but he builds a dry cleaning operation on the lot and starts running the store. Cassie lives in her own residential house, but she then lets the local electric utility (Daring) install solar-energy-collecting arrays in her backyard.

Imagine that Becky dislikes Al’s dry cleaning and the solar arrays on Cassie’s lot. Can Becky stop either of those land uses? To do so, she’d have to show that the dry cleaning and the solar arrays are nuisances. A defendant commits a nuisance when: he performs an act that interferes with the plaintiff’s use or enjoyment of land she owns or occupies; the interference causes her harm; and the interference is unreasonable.

Nuisance is not a property doctrine strictly speaking; it’s a tort. But the tort is structured as it is to protect a property right. Nuisance protects some underlying legal right owners and occupants have to use their lots as they like. But the right has limits; owners and occupants are entitled (only) to be free from activities off of their lots that interfere unreasonably with their uses. But what kind of defense-side activities are “interferences”? And how “unreasonable” must an activity be before it’s noxious? Normatively, if Al likes dry cleaning and Cassie likes gathering solar energy, why should Becky’s dislike of those land uses get priority in law over their enjoyment?

In a regime of natural rights, the law shouldn’t start by asking how reasonable dry cleaning, residential use, and solar-energy collection are. Or, how valuable they are morally. People may rate different legitimate activities differently, given their own talents and interests. Instead, the law should try to assign to every owner or occupant equal opportunity, to decide for himself, which activities to engage in. No one can have perfect discretion to use her own lot as she likes; most of the things she’ll do on her lot will affect others. But the law should give very owner or occupant the greatest discretion consistent with others’ having similar discretion.

So judges need to make as clear as they can—they need to determine—the scope of the equal opportunity that goes with ownership or possession of a lot of land. The legal right to use land should be structured as an interest-based right. The right should entitle owners and occupants to broad managerial authority over their lots. But that right should be understood as a means, serving interests proprietors have in putting their lots to morally-productive uses.

That approach gives structure to the substantive legal right to use land. (Here, I’m ignoring a lot of branches of nuisance doctrine and focusing on the field’s main features.) At the most basic level, nuisance law should protect owners and occupants only from activities off their lots that disturb them on their lots. Defense-side activities that produce smoke, noises, smells, seepage, vermin, or other tangible, “trespassory” effects on a lot. If defense-side activities don’t hit plaintiffs where they live, their side effects can’t be that bad. And if when no one can complain about those side effects, everyone gets more freedom of action on his own lot.

Even then, not all trespassory pollution should be noxious. Trespassory pollution shouldn’t be actionable if and when it seems justified. Here, “justified” means, “incidental to a lot of ordinary and productive land uses.” So in doctrine, defense-side pollution should be “unreasonable” (only) when it seems heavier than is incidental to many typical and productive land uses.

Even then, the concept of “incidental” should vary by locale. Locality norms enlarge residents’ freedom to use their lots as they like. The level of pollution incidental to an industrial neighborhood should be far higher than the level incidental to a residential neighborhood. When different tolerance levels are enforced in different neighborhoods, proprietors can segregate to the areas with the tolerance levels best for their land uses.

Under that approach, Al’s dry cleaning should be noxious in a residential neighborhood. Not because dry cleaning is a bad activity morally. In a residential neighborhood, dry cleaning bothers most neighbors more than any of them bother one another with their lawn mowers, their trash, and their toilet waste.

By contrast, the solar arrays on Cassie’s property shouldn’t be noxious. Not because Becky is wrong because she thinks that the arrays are unsightly. People can differ strongly about what’s pretty and ugly. If nuisance actions were available for eyesores, they would chill the free use of land, much as laws against speech that causes offence chill speech.

Obviously, nuisance law makes a rough, first cut at use rights. It relies on broad generalizations about what neighbors want and what they may reasonably expect from one another. Neighbors may have different preferences. So a system of property should make it easy for owners to tailor their use rights in law to their preferences. That is what servitudes do. Servitudes are non-possessory property rights, and they entitle a holder who doesn’t own a lot of land use that lot in a few specific ways.

Servitudes come in two main categories. Easements let a non-owner enter or pollute on someone else’s land in specific ways. In my hypothetical, Daring needs an easement to install a solar array on Cassie’s lot, and Al needs an easement to pollute on Becky’s lot. Covenants running with the land entitle an owner to veto designated uses of a neighbor’s lot. The most familiar running covenant entitles neighbors in one residential development to veto non-residential uses. In my hypothetical, Becky would need a running covenant from Cassie to stop her from installing fixtures Becky finds unsightly.

And servitudes raise the same basic normative issues as the ones covered yesterday with leases and the estate system. A legal system facilitates the productive use of land when it recognizes servitudes. The people who acquire servitudes get to use someone else’s land for their own purposes—to get to a nearby road, to run a useful factory without worrying about liability, or to enjoy scenery that’s prettier without some eyesore on it. The owners who assign servitudes use the servitudes as leverage; to get reciprocal property rights or some other consideration they can use for their own benefit.

Like leases and future interests, servitudes threaten the interests of third parties; they fractionate and complicate rights in land. But those dangers don’t justify the abolition of servitudes; they justify the many doctrines that regulate servitudes. Third parties need notice of servitudes—consistent with property’s claim-communication requirement—so servitudes need to be recorded. Dangers about sufficient access to land (because of fragmentation) can be addressed by doctrines authorizing the invalidation of servitudes (like the doctrine terminating covenants on account of changed circumstances).

The foregoing approach to use rights and servitudes differs from standard economic analyses of nuisance. Those analyses are “Coasean” because they build on Ronald Coase’s seminal article The Problem of Social Cost. In these analyses, it doesn’t matter whether Al has a right to emit dry cleaning fumes, whether Becky has a right to get Al’s operations enjoined, or so on. The conflicting activities create reciprocal harms. In a world without transaction costs, the parties would bargain around legal rules so that the highest value use could continue (with compensation to the lower-value user). In a world with transaction costs, the law should assign the use rights as seems most likely to maximize the social value of the parties’ land uses after subtracting for transaction costs.

Coasean analyses are skeptical of common law use rights. Such analyses portray nuisance common law as formalistic, as relying on factors with as much normative significance (Coase’s words) “as the colour of the judge’s eyes.” Although that skepticism is familiar in scholarship, the critique isn’t nearly as convincing as it’s assumed to be. There are two major problems.

The first problem is conceptual. When Coasean works complain how legal sources discuss “rights” (and “causation,” and “harm”) they don’t consider a possibility: Maybe those sources attribute different meanings to those terms, for different goals. The word “right” occurs in “Al purchased a right to run his dry cleaning machines between 9 a.m. and 5 p.m., as long as he filters his chimneys and he doesn’t emit more than X level of smoke.” And again in “Becky has a right to use and enjoy her lot free from unreasonable interference.” The first mention of “right” is much, much more specific and context-dependent than the second.

That difference isn’t problematic by itself. Welfare economics and law focus on different problems. Welfare economics studies how people bargain with and respond to legal rules. In that context, legal entitlements are taken as givens and it makes sense for “rights” to refer to specific conclusions and entitlements.

In a system of law, though, rights are structured as they are for political reasons. Political morality can’t and doesn’t take preferences and starting entitlements as givens. When people disagree with one another how to use land, which preferences count? Why should the law protect Becky’s dislike of dry cleaning chemical smells but not her dislike of solar arrays? Or, if the focus is on starting entitlements, why should Becky have a say-so about fumes floating onto her lot, but not about the visual appearance of structures on Cassie’s lot? The rights protected in nuisance are more open-ended, so they can be applied differently in different contexts depending on what seems just, fair, or reasonable to all affected parties in context.

So the second problem for law and economic analysis is normative: If a normative theory claims to apply to law, it must be backed by arguments capable of justifying the use of force to make citizens follow its prescriptions. Do any such arguments justify the use of government-sponsored force to make citizens follow rules that are supposed to be efficient? The most common arguments for normative law and economics rely on utilitarianism, preference-satisfaction, or wealth-maximization. Those justifications all suffer from problems, and to date those problems haven’t been addressed convincingly.

When nuisance law and servitudes treat use rights, they do so in private law. But use rights are also regulated in public law, through zoning laws, environmental regulations, and so on. And those public laws raise questions about regulatory takings. Tomorrow, I’ll discuss regulatory takings, the police power, and the eminent domain power.