The New Palgrave Dictionary of Economics and the Law (Peter Newman, Ed., May 1998)
Posted: 20 Feb 1998
First possession has been the dominant method of establishing property rights. This rule grants an ownership claim to the party that gains control before other potential claimants. First possession is both more prolific and more viable than suggested by the exotic treasure trove and wild animal cases that typically come to mind. In fact, first possession has been applied widely in both common and statute law in such varied settings as abandoned property, adverse possession, bona fide purchaser, fisheries and wildlife, groundwater, intellectual property, land, non-bankruptcy debt collection, nuisance law, oil and gas, pollution permits, the radio spectrum, satellite orbits, seabed minerals, spoils of war including prisoners and slaves, treasure trove, and water rights. First possession is also a powerful norm in many societies, where it is better known as "finders keepers" or "first come, first served." First possession rules touch on important issues in law and economics such as the role of transaction costs in shaping legal institutions, the link between private contracting and government action, and the relative efficiency of common law, norms, and statutes. Economists have shown that first possession might cause rent dissipation from racing or from overexploitation. This essay shows how dissipation can be avoided and explains the observed pattern of first possession rules in a variety of legal fields. The analysis hinges on the recognition that possession may extend to either the entire stock of a resource or simply a one-time flow from that stock. Not only do the paths of rent dissipation depend on this distinction, but so do the predicted responses of the law. When first possession has the potential for a race, the law tends to mitigate dissipation by assigning possession when differences between claimants are greatest. Alternatively, when first possession leads to overexploitation through a rule of capture, the law tends to limit access and restrict the transfer of access rights in order to limit open access dissipation.
JEL Classification: D23, K11
Suggested Citation: Suggested Citation