Lueck 8 Micelli-Property Lazo thus property rights are not perfectly defined (Allen 1999, Barzel 1997). 3The Coase Theorem thus stresses the role of transaction costs in shaping the institutions, including law, that determines the allocation of resources. Seen as the costs of defining and enforcing property rights, transaction costs include enforcement costs, measurement costs, and moral hazard costs (Allen 1998) But Coase's insight goes further. Not only does the law matter for efficiency, as Demsetz(1972) explicitly points out, but the law itself is an economic choice, also expected to be driven by economic forces. Indeed, Coase's(1960)discussion of nuisance law suggests an economic logic to the law in its assignment of property rights among various parties to these disputes, but its relevance extends beyond the study of externalities. It is concerned with the larger question of how property rights are established, the types of property rights regimes that are allowed, and the rules that govern the use and transfer of property rights. In this sense, property law is a complement to markets. This is the real contribution of Coase, and it will emerge as a theme throughout this chapter in a wide range of property law settings 1. 4. Outline of chapter The remainder of the chapter is organized as follows. Section 2 develops the basic economic models of property rights that guide the analysis throughout the chapter. Section 3 examines the origin of rights. Section 4 follows with an analysis of the changes in property rights, or what has become known as the evolution of rights. Section 5 then examines various forms of voluntary of title by adverse possession and theft. Section 7 examines various means of internal go ers exchange, including markets, leases, and inheritance. Section 6 examines involuntary transfers externalities. Section 8 considers issues related to state(collective)ownership, as opposed to private ownership, of property, including the optimal scale of ownership and takings. Section 9 considers restrictions on the alienability of property. Finally Section 10 concludes. Each section is a mix of formal and informal theory and application to law and related institutions Throughout we try to make clear that the goal of the chapter is to use economics to illuminate the rationale for and effects of property law doctrine. Where possible we summarize the empirical literature or explain empirical applications. The sections are not symmetric, simply because the literature is not symmetric 2. Basic Property rights models Before examining property law doctrine it is appropriate to first examine the predominant types of property rights regimes and their economic structure. In this section we both describe the various types of property and examine the implications of these regimes for the use of and Many scholars have called a case of zero transaction costs a Coasian world but Coase(1988, p 174)claims"The world of zero transaction costs has often been described as a Coasian world. nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave In another path breaking article, Coase(1937)uses a similar transaction cost argument to explain the boundary between markets and firms. Barzel and Kochin(1992)note the link between Coase's property rights and transaction costs theories Because of its focus on specific assets, we make little use of theproperty rights theory of the firm'(e.g, Hart an Moore 1990)which has become important in the economics of organizationLueck & Miceli – Property Law 4 thus property rights are not perfectly defined (Allen 1999, Barzel 1997).13 The Coase Theorem thus stresses the role of transaction costs in shaping the institutions, including law, that determines the allocation of resources. Seen as the costs of defining and enforcing property rights, transaction costs include enforcement costs, measurement costs, and moral hazard costs (Allen 1998). But Coase’s insight goes further. Not only does the law matter for efficiency, as Demsetz (1972) explicitly points out, but the law itself is an economic choice, also expected to be driven by economic forces.14 Indeed, Coase’s (1960) discussion of nuisance law suggests an economic logic to the law in its assignment of property rights among various parties to these disputes, but its relevance extends beyond the study of externalities. It is concerned with the larger question of how property rights are established, the types of property rights regimes that are allowed, and the rules that govern the use and transfer of property rights. In this sense, property law is a complement to markets. This is the real contribution of Coase, and it will emerge as a theme throughout this chapter in a wide range of property law settings. 1.4. Outline of Chapter The remainder of the chapter is organized as follows. Section 2 develops the basic economic models of property rights that guide the analysis throughout the chapter. Section 3 examines the origin of rights. Section 4 follows with an analysis of the changes in property rights, or what has become known as the evolution of rights. Section 5 then examines various forms of voluntary exchange, including markets, leases, and inheritance. Section 6 examines involuntary transfers of title by adverse possession and theft. Section 7 examines various means of internalizing externalities. Section 8 considers issues related to state (collective) ownership, as opposed to private ownership, of property, including the optimal scale of ownership and takings. Section 9 considers restrictions on the alienability of property. Finally Section 10 concludes. Each section is a mix of formal and informal theory and application to law and related institutions. Throughout we try to make clear that the goal of the chapter is to use economics to illuminate the rationale for and effects of property law doctrine. Where possible we summarize the empirical literature or explain empirical applications. The sections are not symmetric, simply because the literature is not symmetric.15 2. Basic Property Rights Models Before examining property law doctrine it is appropriate to first examine the predominant types of property rights regimes and their economic structure. In this section we both describe the various types of property and examine the implications of these regimes for the use of and 13 Many scholars have called a case of zero transaction costs a ‘Coasian world’ but Coase (1988, p.174) claims ‘The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave.’ 14 In another path breaking article, Coase (1937) uses a similar transaction cost argument to explain the boundary between markets and firms. Barzel and Kochin (1992) note the link between Coase’s property rights and transaction costs theories. 15 Because of its focus on specific assets, we make little use of the ‘property rights theory of the firm’ (e.g., Hart and Moore 1990) which has become important in the economics of organization