Property and Precaution

Abstract:     
Property in land suffers from an unacknowledged precautionary deficit. Ownership is dispensed in standardized blocks of monopoly control that are routinely retained in their entirety until someone raises an issue regarding an actual or potential incompatible land use. This arrangement, which encourages owners to take sustained, unpriced draws against a limited stock of future flexibility, sets the stage for future impasse as inconsistent plans develop. It also makes property an unnecessarily accident-prone institution, given the role that bargaining failure plays in producing costly land use conflicts. Expanding the slate of potential precautions beyond owners’ locational and operational choices to include their choices about the strength and content of their own entitlements can offer new traction on land use disputes. In this essay, I propose using a local option exchange to confront owners with the opportunity costs of maintaining veto power over unused, low-valued rights. Enabling owners to relinquish property-rule protection of such rights before conflicts arise could reduce the costs of incompatible land uses by making property more flexible and communicative. This approach also carries interesting institutional and theoretical implications. Among other things, it requires rethinking the limits of customization in property bundles and the potential for owner participation in entitlement definition.

Number of Pages in PDF File: 65

Keywords: entitlements, property rules, liability rules, put options, call options, easements, land use conflicts, precautions, holdouts, bilateral monopoly, transaction costs, deposit-refund systems

Accepted Paper Series