Outline
• Markets and private law
• Collective discussion of the factory-farmer example
• Economic and social roles of property rights
• Exclusion and governance strategies
1
Interdependencies
Regulation pursues collective
interests
Capitalistic markets are
supported/constrained
by regulation
Welfare provisions address
social needs
2
Regulating markets
Public regulation
Private regulation
(e.g. industry selfregulation)
Private law
3
Two ways to regulate markets
(but with overlapping areas)
Public Law
Private Law
(Authority)
(Autonomy)
4
Who was born first?
• In Western Europe, private law
• In the absence of a system of public taxation in the Middle Age,
property rights allowed early rulers to collect rents from peasants
• Moreover, adjudication systems were established to ensure
commercial exchanges could take place at local or regional level
5
Factories versus farmers
• A factory producing chemicals is authorized to start operations close
to an area where agricultural activities are already well established
• The factory emits smoke, dust and noise, but stays within the
regulatory limits for such emissions
• Though, these emissions damage, or make it impossible to carry out,
agricultural activities
6
Who regulates what?
• Both the factory and the farmers engage in market activities
• Can you identify public law and private law aspects in this example?
7
Factories v farmers:
the public law dimension
• Public law can regulate how activities with a potential negative
impact on society are carried out
• A balance between competing interests (in this case, btw. factories
and farmers) is struck
• But this is not the end of the story…
8
Factories v. farmers:
the private law dimension
• All market activities need:
1) Property rules to start and manage their operations
2) Contract rules to engage in market trading
3) Liability (tort) rules to keep under control accident risks
9
Property-Contract-Tort
• Market performance depends on:
a) All the three areas of private law working well
b) Each of them defining its scope in relation to the other two
c) Each of them performing functions which the other two cannot
perform
10
Not always in the same box
• Legal systems differ in how they define the boundaries of the three
branches of private law
a) Some rules belonging to property law in one legal system shift to tort
law in another legal system
b) Some rules belonging to contract law in one legal system shift to tort law
in another legal system
c) Some rules belonging to property law in one legal system shift to
contract law in another legal system
• This means that rules differ for the same kind of dispute
11
Rights in private law
Rights
Relative or
personal rights
Contracts
Liability
rules
Absolute
rights
Property
rights
12
Poll:
what is your idea of property?
• Do you agree that:
a) The government should compensate you if it takes your land over
to build a school?
b) You are free to build a house on your land?
c) You are free to send polluting emissions in the air up to the legal
limit?
d) You are free to cut a 100 years old tree to build an extension of your
house?
e) You own anything of value (including minerals and oil) is found
under your land?
13
The ‘little king’ idea of property
• There is empirical evidence that lay people idea of property bears
little resemblance to its legal definition
• Most of the times, people believe the say ‘your home is your castle’
• Owning something usually means the freedom to choose how to use
it
• But in Western legal systems, property law imposes on owners
obligations toward others and the environment
14
Three questions for property law
1) What legal relationships does property law regulate?
2) How do different types of property rights interact?
3) How do we decide the level of protection for each property right?
15
What is property law about?
• Land
• Industrial equipment
• Customer lists
• Stocks and bonds
• Facebooks accounts
• Computer software
• Cryptoassets
16
Meanings of property rights
Economics
Exclusive right to exploit a resource
Law
Par. 903 BGB
The owner of a thing may, to the extent that a statute
or third-party rights do not conflict with this, deal with
the thing at his discretion and exclude others from
every influence.
Right to make decisions and control Art. 832 It. c.c.
The owner has the right to benefit and to use things in
human and capital resources within an a full and sole way, within the limits and observing the
organization
duties established by the law.
Art. 240 CCC
The owner of an immovable or movable has the right
to possess, use, enjoy, and dispose of such an
immovable or movable in accordance with the law.
17
Property rights
for economists and lawyers
• Economists are interested in understanding how each kind of
property right affects people’s behavior
• But they pay less attention to the multiple goals property law has to
pursue
• This means that a focus on exclusive use of the resource is too
limited
18
Why do market activities
need property rights?
• Take the example of the factory:
a) With the property right to build the chemical plant, the factory is shielded from
the expropriation risk
b) The factory reduces its defense costs: if someone interferes with its property
right, the force of the law can be invoked
c) Only if property rights are identified there is something to trade
d) Property rights support other transactions (e.g. as collateral for accessing bank
credit)
19
The social function of property
• Is property law only about efficiency?
• No
• Property law also enables all persons to exercise core liberties, to
enjoy equal dignity, and to be treated fairly in their relationships with
other owners and nonowners
20
Constitutional property law
5° Amendment to US Const. (1791)
Art. 42.1-2 It. Const. (1948)
• No person shall be … deprived of
life, liberty, or property, without
due process of law; nor shall
private property be taken for
public use, without just
compensation.
• Private property is recognised and
guaranteed by the law, which
prescribes the ways it is acquired,
enjoyed and its limitations so as to
ensure its social function and make
it accessible to all.
• In the cases provided for by the law
and with provisions for
compensation, private property
may be expropriated for reasons of
general interest.
21
Property as
a human or fundamental right
Art. 1 1° Protocol ECHR (1954)
• Every natural or legal person is entitled to
the peaceful enjoyment of his
possessions. No one shall be deprived of
his possessions except in the public
interest and subject to the conditions
provided for by law and by the general
principles of international law.
• The preceding provisions shall not,
however, in any way impair the right of a
State to enforce such laws as it deems
necessary to control the use of property
in accordance with the general interest or
to secure the payment of taxes or other
contributions or penalties.
Art. 17
EU Charter of Fundamental Rights (2010)
1.
2.
Everyone has the right to own, use,
dispose of and bequeath his or her
lawfully acquired possessions. No one
may be deprived of his or her
possessions, except in the public
interest and in the cases and under the
conditions provided for by law, subject
to fair compensation being paid in
good time for their loss. The use of
property may be regulated by law in so
far as is necessary for the general
interest.
Intellectual
property
shall
be
protected.
22
Why are constitutional provisions on property
important?
• Because they lend themselves to two interpretations:
1) Property rights are only justified if they fulfil some public interest,
not the owner’s individual interests
2) Constitutional provisions are only an external limit, but do not
constrain the owner’s freedom to choose how to use resources
23
Social function of property:
examples from different cultures
US
SA
BR
In the 1960s, Civil
Rights legislation
prohibited
discrimination related
to access to public
accommodation
(hotels, restaurants,
etc.) and to sale,
financing and renting
of housing
In the postApartheid era, lowincome occupiers of
land unable to
formalize their
property rights were
protected from
evictions
Urban planning
requires procedures
which take into
account not only
owners’s interests,
but broader interests
of the affected
communities
24
Ecological property
rights?
Should property rights be
acknowledged only to the
extent they lead to
sustainable uses?
And should the interests
of future generations be
taken into account when
deciding which uses are
legitimate?
25
News on environmental protection
in the It. Const.
Article 9
Article 41
• The Republic shall promote the
development of culture and
scientific and technical research.
• It protects the landscape and the
historical and artistic heritage of
the Nation. It protects the
environment, biodiversity and
ecosystems, also in the interests
of future generations. The law
of the state regulates the ways
and forms of animal protection.
• Private economic initiative is free.
• It cannot take place in conflict with
social utility or when damaging
safety, freedom, human dignity,
health and environment.
• The law provides appropriate
programs and controls, so that
public and private economic
activities can be directed and
coordinated
for
social
and
environmental purposes.
26
Property rights and social needs
• Why is the owner of a home given an expansive set of rights to
exclude?
• The rights are derived from the social forces that make ownership an
attractive way to organize society’s response to the need for shelter
• Rights in property are shaped by social needs in a particular culture,
and do not exist, either conceptually or normatively, outside of that
social need
27
Social and economic trade-offs?
• It cannot be excluded that interventions justified by social needs
backfire, i.e. destroy economic incentives
• For example, capping rents for the poor could reduce investments in
the real estate sector
• Though, a broader and long-term view is required: reducing
inequality of access to property is the only way to ensure growth
remains stable
28
Four property relationships,
two strategies
Government
(exclusion)
Other owners
(governance)
Owner
Holders of limited
property rights
(governance/
exclusion)
All others
(exclusion)
29
Exclusion or governance?
• If each resource use could be described in detail, there would be no reason
to employ two strategies: each party would know what she can do and
what she cannot do
• But in the real world, there is no possibility to describe each resource use:
it would be too costly
• This means that all property rights are incomplete to some extent
• The two strategies are needed to tell people which uses are possible and
by whom
30
How the two strategies work
• The exclusion strategy reduces information costs for both the owner
and all others: the former decides how to use the resource, the latter
shall not interfere with her choices
• The governance strategy is employed for important conflicts over
some uses and tells people how resources should be managed and by
whom
31
Exclusion and governance strategies
32
Strategies
for the full range of property rights
Property relationship
Strategy
Examples
Government
Exclusion
Takings
Other owners
Governance
Easement
Nuisance
Holders of limited
property rights
Governance within the
limits of the numerus
clausus principle
Easement
Usufruct
Security rights
All others
Exclusion
Access denial
Trespass to land
33
Managing private property
A
B
Small size events
C
Middle size events
D
Big size events
34
Can we live without property rights?
The tragedy of the commons
•
Suppose we can use neither strategy: what happens?
1) Everyone exploits the resource to the largest possible extent;
2) No one will invest to preserve and extend the resource
•
Destruction of the resource becomes inevitable
35
Tragedies of the commons
in the Third World
• Common management of land and other natural resources by tribal groups
• Next, the states privatizes such resources
• The new formal rights conflict with traditional collective management
• The outcome is often the destruction of natural resources (deforestation,
desertification, etc.)
36
The different fate
of renewable and non-renewable resources
• No exhaustion of nonrenewable resources (e.g. fossil fuels and
minerals)
• Many renewable resources (e.g. ocean fishing) have become
increasingly scarce or have been exhausted
• What explains this paradox? Different property rights?
37
38
Sorry, fish is finished
• Nearly 90% of global fish stocks are either fully fished or overfished,
based on the FAO State of World Fisheries 2016
• For instance, in the Mediterranean and Black Sea, 59% of assessed
stocks are fished at biologically unsustainable levels
• The possible expansion of invasive fish species associated to climate
change is a concern in the Eastern Mediterranean
39
Can the tragedy be avoided?
•
Yes, when the group displays some crucial attributes:
1) Accurate information available at low cost
2) Participants share common understanding of potential benefits
and risks
3) Generalized norms of reciprocity and trust
4) The group is relatively stable
5) Collective-choice rules that avoid high transaction or high
deprivation costs
6) Low-cost monitoring and sanctioning arrangements
40
Distributing property rights
for commons management
Private
property
Commons
mgmt.
Commons
mgmt.
Servitude
User
Personal
(public
obligations property)
Yes
Yes
Access
Yes
Yes
Yes
Exploit.
Yes
Yes
Yes
Yes
No
Mgmt.
Yes
Yes
Yes
No
No
Exclusion
Yes
Yes
No
No
No
Transfer
Yes
No
No
No
No
41
Commons management:
which role for institutions?
• Supporting groups’ self-organization
• Providing information
• Conflict resolution processes
• Back up for local monitoring and sanctioning
42
Commons in Italy:
Law 168/2017
Exclusion
Governance
No transfer
Self-governing autonomy for
communities
No division
Collective management
No change of use (unless justified)
Monitoring by public authorities
Only environmentally sustainable uses
43
Take-home lessons
• Markets need property law, contract law and tort law, each for the
different roles they play
• Property law is needed to use resources efficiently, but also to
pursue social functions
• Exclusion and governance are the two strategies allowing to regulate
the four property legal relationships
44