Transaction Costs and Property Rights: Or Do Good Fences Make Good Neighbors?

Abstract:     
This essay takes off on the famous phrase "good fences make good neighbors" from Robert Frost's poem "The Mending Wall" to explore the function of boundaries in setting up property rights. The first section of the paper begins by exploring how boundaries create spaces where individual decisions can be made without the costs of collective action. It then examines how this extreme separation can lead to the duplication of resources, which in turn prompts customary practices that allowed for shared space at the boundary lines which work to the mutual advantage of the two (or more) parties who share common boundaries. It gives illustrations from customary agricultural practices and the law of nuisance to explain why common law boundaries should be understood to be semi-permeable instead of absolute.

JEL Classifications: D23, H41

Working Paper Series