Conflicts in the Cathedral: Towards a Theory of Property Rights in Private International Law

Abstract

Despite significant scholarly work addressing the law and economics of choice of law in contracts and torts, most scholars have left property conflicts to the clutches of formalism. Choice of law and jurisdiction principles, however, determine the manner in which property laws serve regulatory, definitive and exchange functions.

Property law's exchange function describes the procedures by which entitlements may be traded; however, the choice and compliance with those procedures between transactors in multistate contexts has the characteristics of a coordination game, with the complication of multiple equilibria. I demonstrate how the lex situs choice of law rules can assist coordination by shadowing focal substantive law, and can allocate the risks of title imperfections to the party with the lowest search costs.

The appeal of the lex situs decreases for the definitive and regulatory functions of property law where property is jurisdiction-specific (immovable). The lex situs together with the common law rule denying jurisdiction over torts and trespasses affecting immovables creates a jurisdictional monopoly. Land owners may be particularly vulnerable to the effects of rent-seeking in these cases, as is apparent in cases involving harmful externalities in the developing world. Invoking the economic literature on liability rules and property rules, I argue in favour of limited exceptions to the pro-situs rules as a means of increasing the efficiency of land use, where bargaining is impossible, and, following Johnston, and Ayres and Talley, as a means of increasing Coasean trade in property entitlements, where bargaining is possible. Nonetheless, state incentives to apply such exceptions are substantially limited.

JEL Classification: K11, K23