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Abstract:
This Article proposes that intellectual property's close relationship to property stems from the role that information costs play in the delineation and enforcement of exclusion rights. As theorists have emphasized, the nonrivalness of information causes exclusive rights to be more costly in terms of forgone use than in the law of tangible property. But if intellectual property does not solve a problem of allocation to information, it can play a role in allowing those who find and develop information to appropriate the return from their rival inputs. It is on the cost side that exclusion emerges as a possible shortcut: exclusive rights in information are simple, indirect, and low-cost devices for solving the problem of appropriating the return from these rival inputs. Building on a framework that identifies exclusion and governance as complementary strategies for defining property rights, the Article derives some propositions about which factors can be expected to push toward and away from exclusion in delineating entitlements to information. The role that exclusion plays in keeping the system of entitlements over information modular - allowing information to be hidden behind metaphorical boundaries - is both its strength and its weakness. Because exclusion is both more costly and potentially more beneficial as interconnected information becomes more valuable, it is an empirical question whether we would expect more exclusion - and whether it would be desirable. The Article uses this information-cost theory to explain some of the basic differences between the more tort-like copyright regime and the more property-like patent law. The information-cost theory also has implications for suggestive sources of empirical evidence on structures of entitlements, such as rules within business organizations. Intellectual property, like property in general, can be seen as (at best) a second-best solution of a complex coordination problem of attributing outputs to inputs.

intellectual property, property, information costs, exclusion, governance, patent, copyright

Abstract:
This Article offers a theory of nuisance law based on information costs. Like trespass, much of the law of nuisance relies on a strategy of exclusion in which rights are defined using low-cost signals like boundary crossings that are only indirectly tied to particular uses. Nuisance law also supplements and fine-tunes this Blackstonian package of entitlements by means of a governance strategy, which relies on signals more directly tailored to particular uses. The information-cost advantage of strategies close to the exclusion end of the spectrum helps explain why, despite repeated calls for more balancing, nuisance law focuses on who caused invasions of whose land. Also consistent with an exclusion strategy are the staying power of traditional nonreciprocal notions of causation and the virtual nonexistence in nuisance of Rule 4 liability rules, under which plaintiffs would be permitted to invoke the law to force the polluter either to abate or shut down upon payment of the polluter's damages. Applying Hohfeldian analysis, the Article shows that the common law gives polluters at most a privilege to pollute and that Rule 4 does not refine the basic exclusion regime but rather undermines it. The general question becomes when to soften exclusion with governance and the Article concludes by arguing that, in situations such as oil and gas fields and Boomer-style pollution cases with numerous victims, only small judicial governance-style safety valves are necessary, especially if legislative and administrative solutions are forthcoming. More generally, the information-cost theory of nuisance brings the utilitarian and corrective justice approaches to nuisance closer together. Nuisance law is not a mess or mystery but does contain within it the inflection point between exclusion and governance.

nuisance, information costs, trespass, property, liability rules, oil and gas

Abstract:
This Article builds on the literature generated by Calabresi and Melamed's framework for protecting entitlements through property and liability rules. Pointing to the gap between academic commentators' conclusions that liability rules are superior in most circumstances and the reality that property rules overwhelmingly predominate in the law, the Article offers a theory of the advantages of property rules that is based on information costs. The starting point for this theory is the observation that assets are heterogeneous in ways that are economically significant but costly to identify and value; liability rules inevitably involve some need for an official to make such valuations. The Article then argues that the preference for liability rules rests on certain convenient but overly simple assumptions that elide the costs of producing information about assets and activities.

Second, this Article explores the natural pairing between property rules and owners' rights to exclude others from their property. The "exclusion strategy" for protecting property rights relies on simple on/off signals such as the boundary around a parcel of land to communicate rights and duties to the rest of the world. Within this protected zone, owners have open-ended choices of how to invest in or consume the asset. This Article shows how pairing property rules with an exclusion strategy has advantages that stem from saving information costs, deterring opportunism by potential takers, and discouraging owners from engaging in wasteful self-help. Finally, this Article shows how the information-cost theory illuminates the connection between property rule protection and traditional notions such as residual claimancy and property in the sense of an in rem right to a thing.

Property, Property Rules, Liability Rules, Exclusion, Information Cost, Valuation, Bounded Rationality, Residual Claim

Abstract:
This short essay written for a broad audience addresses the problems that are at the center of current debates in academic and policy circles about the patent system. Most current patent reform proposals are designed to give officials and courts more power to weaken or eliminate ‘‘unworthy’’ patents and take primary aim at so-called patent trolls. This essay argues that in light of the rapid, and excessive, changes that have already occurred in the courts, what patent law needs is a tweaking of existing safety valves and processes - not opening the floodgates to more discretion and uncertainty.

patent, innovation

Abstract:
Like property, contractual boilerplate is less tailored to its contractual and business environment than one might expect considering only the costs of producing it. Boilerplate, like all legal communication, requires actors to trade off the benefits of information-richness with the need for adaptability to a wide variety of contexts. One device for managing the complexity of contexts is modularity, under which a system is divided into information-hiding components which allow internal interaction but only limited interaction across component boundaries. Modularity helps boundedly rational agents to understand systems and to specialize in working on a subset of modules. Modularity also facilitates adaptability of systems in response to changes in the environment. Boilerplate utilizes modularity to allow for its addition, subtraction, and porting from one contract to another, without the need to worry about unforeseen interactions with other parts of the contract and the business context. Governing law and severability provisions provide particularly dramatic examples. Boilerplate is also intermediate between contract and property in terms of contexts not taken into account by the creators of boilerplate, and thus boilerplate requires less judicial intervention to maintain standardization than does property, but more so than in the case of contracts. The need for modularity also helps explain the role of "reading costs" in parties' choice of simpler contractual provisions over other more complex provisions that are not necessarily more costly to write. Modularity and formalism more generally are matters of degree, and underappreciated benefits of modularity help explain the incompleteness of the Realist revolution in contracts and the relationship of contracts to off-the-rack doctrines in civil and common law.

contract, boilerplate, modularity, information, bounded rationality, standardization, formalism

Abstract:
This Article applies an information-cost theory of property to water law. Because of its fluidity, exclusion is difficult in the case of water and gives way to rule of proper use, i.e., governance regimes. Looking at water through this lens reveals that prior appropriation employs more governance and riparianism rests more on a foundation of exclusion than is commonly thought. The development of increasing amounts of exclusion and governance are both compatible with a broadly Demsetzian account that is sensitive to the nature of the resource. Moreover, hybrids between prior appropriation and riparianism are not anomalous. Exclusion strategies based on boundaries and quantification allow for rights to be formal and modular, but this approach is particularly challenging in the case of water and other fugitive resources. The challenges of exclusion that water and other fugitive resources present often lead to a semicommons in which elements of private and common property both coexist and interact.

water law, riparianism, prior appropriation, modularity, semicommons, exclusion, governance, fugitive resources

Abstract:
Community custom has played a limited but important role in the law of property. In addition to a few major historic examples such as mining camp rules and whaling, property law sometimes relies on community custom, for example in adverse possession, nuisance law, and beach access. This paper provides an informational theory of custom in property law. Custom is subject to a communicative tradeoff in the law: all else equal, informationally demanding customs require an audience with a high degree of common knowledge. General customs already known throughout society do not require much extra publicity from the law, and the law can piggyback on such customs. By contrast, customs that vary by community raise the question of the need for processing by non-expert audiences, i.e. outgroup dutyholders and government officials. This tradeoff helps explain the differential receptiveness to various customs and the process by which they are formalized if they are adopted into the law. The information cost theory suggests that enthusiasts and skeptics of custom have both tended to ignore this process. The theory is then applied to some suggestive evidence from grazing customs and the pedis possessio doctrine in mining law, under which miners have pre-discovery rights to the spot being worked. Finally, the information cost theory of custom sheds some light on the history and controversies over the numerus clausus (standardization and limitation of the set of basic property forms) and on the question of baselines of property entitlements in the law of takings.

custom, community, property, information, mining camps, pedis possessio, numerus clausus, takings

Abstract:
Intellectual property rights are controversial because on first glance they present a disjunction between the purposes they serve and the mechanisms they employ. New Institutional Economics (NIE) suggests that for reasons of transaction costs, broadly conceived, institutions are imperfect and their imperfections may nonetheless be cost-effective. This Article draws on the NIE to present a theory of the similarities and differences between IP and regular property, and sharpens some empirical questions relating to the advisability of property-style IP protection. IP is characterized by two types of indirectness that need not both be present in regular property. In first-order indirectness, the resource to be measured is difficult to meter, leading to the use of rough proxies. Variation in outcomes along dimensions of the resource – for example, animals supported by grazing land – show high variance, i.e. risk. Second-order indirectness involves uncertainty or ambiguity about the return from a resource, in terms of how to employ it or even to carve it up – for example choosing crops or deciding between agricultural and residential subdivision. The greater the uncertainty, the more attractive, in terms of maximizing option value, it is to delegate decisions over these dimensions of resource activity to those close to the resource. Both types of indirectness point to advantages that in theory a modular structure of rights can provide: difficulty in measuring dimensions (first-order) or identifying the relevant dimensions (second-order) suggests that a given activity be placed within a module and control over local remodularization be given to private actors. Because information is nonrival, the benefits of modularity must be traded off against the benefits of exclusion costs. In both patent licensing and remedies, an NIE approach to property that does not emphasize information costs has difficulty explaining patent rights as opposed to other internalization and coordination devices. The Article applies the information-cost theory to IP licensing and patent remedies. Licensing implements a governance strategy that enriches the interface between IP rights in limited ways. Injunctive remedies dovetail with a modular structure of exclusion rights, and the traditional equitable approach to injunctions provides for targeted safety valves for problems relating to lack of notice and reasonable reliance by potential infringers.

intellectual property, property, information costs, new institutional economics, exclusion, governance, patent, licenses, injunctions

Abstract:
This Article uses linguistic theory to bring out a tradeoff between the intensiveness of a message versus the extensiveness of the audience: With the same communicative effort, one can convey a great deal of information to a knowing few or less information to wider, more heterogeneous, and more anonymous audiences. The paper shows that this tradeoff can explain certain features of possession law, recording acts, intellectual property, and contract interpretation. Recognizing this informational tradeoff also leads one to expect formalism to be a matter of degree rather than the all-or-nothing choice often assumed by commentators. And the nature of communication within a broad spectrum of institutions is characterized by different modes of striking the informational tradeoff according to the nature of the intended audience. It is in this sense that law involves what linguists call "audience design."

Property, Intellectual Property, Contract Interpretation, Linguistics, Information, Formalism, Audience, Possession, Pierson v. Post, Recording Acts63

Abstract:
This essay describes how the in rem nature of property has been largely ignored in the law-and-economics literature and argues that this omission leads to an incomplete view of property. We trace how, in this as in other respects, Coase's famous article on social cost fundamentally altered the prevailing notion of property by focusing on property as a baseline for contracting or for collectively imposed resolutions of use conflicts. Like the Legal Realists, Coase's article tends to view entitlements as arbitrary lists of use-rights that result from the resolution of use conflicts by courts or contracting parties. Three broad post-Coasean approaches - the contractarian, the tort, and the entitlement perspectives - are identified, in each of which the in rem nature of property is likewise suppressed. Finally, we briefly examine how four areas - the numerus clausus of property forms, the prevalence of certain in rem social norms, the direction of legal causation in resource conflicts, and the trespass-nuisance distinction - could be better explained by appealing to this in rem nature of property and the information costs to which it gives rise.

Abstract:
The boundary between contract and property is often disputed, but one important difference inheres in the underlying nature of the structure of rights. Contract rights are in personam, meaning that they apply to persons directly and impose prescribed obligations on a small number of specifically identified dutyholders; property rights are in rem, meaning that they apply to persons insofar as they own particular things and impose generalized duties of noninterference on a large and indefinite number of dutyholders ("the world"). This article presents a functional justification for why the legal system utilizes these two modalities in fixing use rights in particular resources, grounded in differences in the pattern of information costs associated with each type: In personam rights impose a relatively large informational burden on a small number of parties; in rem rights impose a relatively small informational burden on a large number of parties. Given these differences in information costs, we can also make certain predictions about the nature of the legal doctrine that will be associated with each type of right. The article tests these predictions by examining four legal institutions that have long been regarded as falling along the property/contract interface: bailments, landlord-tenant law, security interests, and trusts. With respect to each institution, we find that the predicted doctrinal pattern generally holds. In personam relations are governed by flexible default rules designed to minimize the costs of delineating prescribed duties imposed on particular parties. In rem relations are governed by bright-line rules that impose immutable and standardized obligations on a large and indefinite class. Relations intermediate between in personam and in rem feature a degree of standardization beyond the in personam designed to provide notice or protection to informationally disadvantaged parties, but do not approach the full standardization associated with in rem relations. Moreover, these intermediate relations become more standardized as the informational problems become more widespread. We interpret these results to confirm that third-party information costs are critical in understanding the underlying distinction between property and contract.

Abstract:
In all post-feudal legal systems, the basic ways of owning property are limited in number and are standardized, in the sense that courts will enforce as property only interests that are built from a list of recognized forms. In the common law, this principle has no name and is invoked only semi-consciously; it is known in the civil-law tradition as the numerus clausus. This Article adopts this term for the corresponding understanding in the common law, and advances an information-cost theory that explains the ubiquity and durability of the doctrine. The numerus clausus can be seen at work in a variety of areas, including estates in land, concurrent interests, nonpossessory interests, interests in personal property, and intellectual property. The Article argues that the principle serves throughout the law of property to reduce third-party information costs. Because of their in rem nature, property rights give rise to third-party information costs in a way that contract rights do not. Individuals trying to avoid violating property rights or investigating whether to acquire them need to gather information. Those creating property rights will in some situations have too little incentive to conform to the most popular forms, requiring a degree of mandatory standardization. As it operates in practice, the numerus clausus strikes a rough balance between the costs of frustrating parties' objectives on the one hand and third-party information costs on the other. The Article demonstrates that this information-cost theory provides a better account for the numerus clausus than do alternative positive and normative views, including those based on the sufficiency of notice, network effects, private standards, anti-fragmentation concerns, and the increasing importance of contract-based rights. Finally, the Article shows that, because it tends to preclude judicial innovation in the basic forms of property rights, the numerus clausus acts as an institutional-choice mechanism that channels innovation in the menu of property rights to legislatures. In keeping with the basic information-cost theory, legislative creation and abolition of property rights is likely to lead to lower information costs than would judicial entrepreneurship in this area.

property, estates, standardization, numerus clausus, network, fragmentation, measurement, contract

Abstract:
Legal rules have long been analogized to taxes. Conventional analysis has often assumed that the mix of attributes within commodities is either fixed or costlessly measured. This Article explores the consequences for legal rules from dropping this neoclassical assumption of constant quality. Instead, attributes are costly to measure, and substitution can occur by altering levels of attributes (such as durability) within commodities, services, and activities. The Article extends models of quality under commodity-excise taxes to the more complex case of legal rules mandating product enhancements (such as nondisclaimable warranties) and to rules aimed at pricing external harms (such as pollution taxes). The Article shows that the range of possible quality effects, direct and indirect, of legal rules is greater than that in the case of excise taxation and that quality changes present issues of measurement cost that have been overlooked. In particular, these quality responses provide alternative and very different explanations for key data invoked by proponents of behavioral law and economics and by advocates of liability rules over property rules. The possibility of quality changes highlights difficult measurement issues in evaluating the efficiency and equity of legal rules.

Quality, liability rule, property rule, informational subset argument, measurement, per unit tax, ad valorem tax, behavioral law and economics, pollution, warranty

Abstract:
This article explores an alternative filing system between joint and individual filing, here termed "intermediate filing." Under such a system, instead of allowing couples to "split" their income as joint filers or forcing them to file as individuals, intermediate filing presents couples with a choice of individual filing as a default or fractional splitting. The ratio of the split would govern both tax treatment and property division (broadly defined) on divorce. The article shows that such a system carries with it various advantages in terms of equity, efficiency, and simplicity. In particular, the article analyzes the impact of the choice of intermediate versus joint versus individual filing on the tax treatment of nonmarket labor and the process of marriage formation. The analysis of intermediate filing also leads to a thought experiment on the role that sharing plays in the taxation of married couples and of multiple-taxpayer groups more generally.

Abstract:
This article models the problems of and solutions to what is termed here a "semicommons." A semicommon exists where property rights are not only a mix of common and private rights but both are significant and can interact. The major example of a semicommons is the medieval open-field system in which peasants owned strips of land for grain growing but used the land collectively for grazing. The ownership structure allowed operation on a large scale for grazing and harnessed private incentives for grain growing. But a semicommons potentially leads to problems of strategic behavior that go beyond the familiar incentives to overuse a commons. Individuals have additional incentives to overuse and to engage in wasteful efforts at favoring and disfavoring parts of the commons depending on who owns them. In order to raise the costs of such behavior and thus to secure the benefits of a semicommons, devices may be used to mix up entitlements. The article claims that scattering of strips in the medieval open fields was one such device: excess favoring of or damage to private property would not be worth the cost when a moving herd of animals would occupy strips belonging to many peasants at any time. Generally, boundary placement and norms are substitute methods of addressing strategic behavior in a semicommons. Among these solutions, scattering functions as a sanction for activities associated with strategic behavior.