1. MUSIC: BRAHMS Cello Sonatas (1862, 1886) Mstislav Rostropovich, Cello Rudolph Serkin, Piano Recording: 1983 §B Lunch Tue Sep 16 Meet at SAC Law Room after Torts Bonet * Erickson * Fraser Golden * Hiers Townsend * Vogel Assignment #1 Coordinators & Kryptons: Get/Confirm Necessary Pseudonyms Before the Weekend

2. Manning v. Mitcherson Once Upon a Time in a small town in Georgia there lived Two Canary Birds …

3. Manning v. Mitcherson “ Sweet ” lived with Mrs. Mitcherson [“ Sour ”] lived with Mr. & Mrs. Manning Looked almost identical Same parted crest Both escaped

4. Manning v. Mitcherson One of the escaped Canary Birds flew into Mr. Brown ’ s kitchen. Mr. Brown gave it to the Mannings. The Mannings refused Mrs. Mitcherson ’ s request for the bird. Mrs. Mitcherson sued. To KRYPTON for DQ 1.43

5. Manning v. Mitcherson : DQ 1.43: KRYPTON ( What ’ s at Issue ?) The parties disagreed as to whether the bird found in Brown’s kitchen was “Sweet” or “Sour.” Whose version of the facts did the magistrate accept?

6. Manning v. Mitcherson : DQ 1.43: KRYPTON ( What ’ s at Issue ?) Magistrate / Justice of Peace Rules in Favor of Plaintiff Mitcherson. Ga SCt.: “ The answer of the ex - officio justice of the peace in this case, the same being a certiorari and no traverse thereof, must be taken as true,...” “no traverse thereof” Means here?

7. Manning v. Mitcherson : DQ 1.43: KRYPTON ( What ’ s at Issue ?) “ The answer of the ex - officio justice of the peace in this case, the same being a certiorari and no traverse thereof, must be taken as true,...” “ no traverse thereof ”  no objection / rebuttal made Justice ’ s answer must be “ taken as true “ = Factual findings not Q ’ ed. – “ Taken as true ” about facts not law –Ga SCt wouldn ’ t defer to legal holding of magistrate So what are facts for purposes of the case ?

8. Manning v. Mitcherson : DQ 1.43: KRYPTON ( What ’ s at Issue ?) Facts for purposes of the case = – Plaintiff ’ s Version = – Canary in Browns ’ Kitchen was “ Sweet ” So What is Defendant’s Legal Claim on Appeal?

9. Manning v. Mitcherson : DQ 1.43: KRYPTON ( What ’ s at Issue ?) Defendant ’ s Legal Claim Not “It’s My Bird” (No Traverse) Not “It Was Never Her Bird” (Years In Cage) Must Be: “She Lost Property Rights When It Escaped”

10. Manning v. Mitcherson : DQ 1.44: OXYGEN ( What ’ s at Issue ?) Why Did This Case Get to Georgia Supreme Court ???!!! Why did the Mannings Keep Fighting? Why did Mrs. Mitcherson?

11. Manning v. Mitcherson : Hints about Mrs. Mitcherson Georgia treats husband as relevant party to lawsuit if both spouses alive. –Mr. Manning is the only Plaintiff, even though pretty clearly his wife ’ s bird. –Mr. Mitcherson not a party. Why not ?

12. Manning v. Mitcherson : Hints about Mrs. Mitcherson Mr. Mitcherson not a party. Why not ? Divorce unusual in 1882, so likely he ’ s dead. –High probability she ’ s a Civil War widow –If so, husband dead at least 17 years.

13. Manning v. Mitcherson : Hints about Mrs. Mitcherson High probability she ’ s a Civil War widow If so, husband dead at least 17 years. Enter the Captain & the Canary !! QUESTIONS ON MANNING ?

14. DEMSETZ ARTICLE

15. DEMSETZ ARTICLE DQ1.30: KRYPTON “In the world of Robinson Crusoe property rights play no role.” Who is Robinson Crusoe? What does quote mean? Why does Demsetz believe this to be true?

16. “In the world of Robinson Crusoe property rights play no role.” One definition of Property: “Legal relations between people with regard to things.” Helpful to think of Property not as a noun but as an adjective (like sacred or beautiful). Some animals are Sacred; some are not. Some animals are Property, some are not. E.g., insects (other than bees) rarely treated as Property In different cultures, different animals get defined as Sacred or as Property.

17. In different cultures, different animals get defined as Property. Bombyx Moth treated as Property in China for several thousand years.

18. DEMSETZ ARTICLE & ELEMENTS Unit One-A has been about how people acquire Property rights in unowned animals. This is part of a broader issue: How and why do things or intangible interests change from being not-Property to Property. Demsetz provides one way to look at this issue that largely revolves around the concept of “internalizing externalities.”

19. INTERNALIZING EXTERNALITIES Changing Rules, Laws or Circumstances to Force Decision-Maker to Take External Costs or Benefits Into Account Generally Imposed from Outside; Not Done by Decision-Maker (cf. Psychology) Beneficial Because Means Price of Activities Will Better Reflect Real Costs & Benefits – Pollution costs  Damages & Regulation – Charitable services  Subsidies/Gov’t Operation

20. INTERNALIZING EXTERNALITIES Several Ways to Do: Changing Rules, Laws or Circumstances to Force Decision-Maker to Take External Costs or Benefits Into Account; Generally Imposed from Outside. Several Ways to Do: – Require Payment of Damages or Fees (or Subsidize) – Regulate Activity: Criminalize or Limit (or Require) – Private Negotiation (Bribes to Do or Not Do Activity) -- BUT Limited by Transaction Costs

21. DEMSETZ ARTICLE DQ1.31: KRYPTON Examples of internalizing externalities from outside the reading?

22. DEMSETZ FIRST THESIS (ME & OXYGEN) New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.”

23. DEMSETZ FIRST THESIS DQ1.33: OXYGEN gains of internalization New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” Gains Gains = Having more effects considered by decision-maker, presumably leading to: Reduction in harmful effects AND/OR Increase in beneficial effects Maximum Potential Gain Maximum Potential Gain = Total elimination of externalities (unlikely)

24. DEMSETZ FIRST THESIS DQ1.33: OXYGEN New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” What are relevant “costs”? costs of bargaining privately costs of collectively creating new rules (can be very expensive) multi-party negotiation legislation

25. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If harm from externalities > cost of change  change in rule

26. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If cost of externalities > cost of change  change in rule Rough Approximation (Not Precise Math)

27. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If cost of externalities > cost of change  change in rule Rough Approximation (Not Precise Math) Resulting Change in Rule Unpredictable

28. DEMSETZ FIRST THESIS DQ1.32: OXYGEN Why does the author believe that new property rights tend to arise from “the emergence of new or different beneficial and harmful effects”? (p.31) Increase in (perceived) cost of status quo needed to overcome inertia stemming from cost of change.

29. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” If cost of externalities > cost of change  change in rule Often Results from Social/Cultural Change  New Social Habits  Value Change  Scarcity  New Science/Technology  Scarcity or Better Monitoring

30. DEMSETZ FIRST THESIS: Basic Analysis Identify decision at issue Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

31. DEMSETZ FIRST THESIS: Basic Analysis: State v. Shaw Identify decision at issue: Thomas: Do I take fish? Identify old rule Identifyneg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

32. DEMSETZ FIRST THESIS DQ1.34(a) (MONTAGNE) : OXYGEN Identify decision/activity at issue: Whether to kill beavers. Identify old rule Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

33. DEMSETZ FIRST THESIS DQ1.34(a) (MONTAGNE) : OXYGEN Tribe-members killing beavers; RULE = no limits except First-in-Time Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

34. DEMSETZ FIRST THESIS DQ1.34(b) (MONTAGNE) : OXYGEN Tribe-members killing beavers; RULE = no limits except First-in-Time Neg. Ext. = Possibility of Overhunting (Slim) Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

35. DEMSETZ FIRST THESIS DQ1.34(b) (MONTAGNE) : OXYGEN Tribe-members killing beavers; RULE = no limits except First-in-Time; Neg. Ext. = Possibility of Overhunting (Slim) French Arrive; Price of Pelts Increases; Hunting Increases How does change increase neg. externalities? If cost of externalities > cost of change  change in rule

36. DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : OXYGEN Tribe-members killing beavers; RULE = no limits except First-in-Time; Neg. Ext. = Possibility of Overhunting (Slim) French Arrive; Price of Pelts Rises  Both Cost & Likelihood of Overhunting Increase What happens next? If cost of externalities > cost of change  change in rule

37. DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : OXYGEN French Arrive; Price of Pelts Rises  Both Cost & Likelihood of Overhunting Increase Tribe Develops Property Rights System Must have invoked decision-making system Decided on new rules & mechanisms to implement [Incurring Transaction Costs associated with change] If cost of externalities > cost of change  change in rule

38. DEMSETZ FIRST THESIS DQ1.34(c) (MONTAGNE) : OXYGEN Tribe Develops Property Rights System Incurring Transaction Costs Associated with Change Can Explain Under Demsetz First Thesis: Big Change in Value of Pelts Perceived Costs of Potential Overkilling Increase Become Greater than Costs of Change Leading to Change in Rule

39. DEMSETZ FIRST THESIS DQ1.35: OXYGEN Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system for rights to Buffalo similar to the one the Montagne for rights to beavers?

40. DEMSETZ FIRST THESIS DQ1.35: OXYGEN Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne? No Scarcity Issue (Little Value to Outsiders) Beavers Dam BUT Buffalo “Roam” (Harder/More Expensive to Create Exclusive Property Rights)

41. DEMSETZ FIRST THESIS DQ1.36 (SEXUAL HARASSMENT) Decision/activity at issue: Male bosses demand sex from women as job condition Old rule: Legal/No Liability Identify neg. externalities under old rule Identify change in circumstances Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

42. DEMSETZ FIRST THESIS DQ1.36 (Pollution Controls) Decision/activity at issue: Manufacturing process that pollutes air or water Old rule: No Liability Identify neg. externalities under old rule Change in circumstances: New technology allows better measurement of pollution & effects Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

43. DEMSETZ FIRST THESIS DQ1.36 (SHACK v. STATE) Decision/activity at issue: Limit access to MWs living/working on your farm Old rule: Allowed Identify neg. externalities under old rule Change in circumstances: “Harvest of Shame”  Federal Programs to aid MWs. Does change increase neg. externalities? If cost of externalities > cost of change  change in rule

44. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” Useful description of how legal change can occur. Going forward, can use to argue that legal change should occur b/c social changes have greatly increased negative externalities.

45. DEMSETZ FIRST THESIS New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” Useful description of how legal change can occur Can use to argue that legal change should occur Questions?

46. DEMSETZ SECOND THESIS (ME & URANIUM) Over Time, Process Described in 1 st Thesis Leads to More and Stronger Private Property Rights

47. DEMSETZ SECOND THESIS Over Time, Process Described in 1 st Thesis Leads to More and Stronger Private Property Rights As Opposed to What?

48. DEMSETZ SECOND THESIS DQ1.37: URANIUM Alternatives to Private Property 1.State of Nature: (Can Use Power/Force to Exclude Others) Common Law re Rights among Family Members Fairly Uncommon Today

49. DEMSETZ SECOND THESIS DQ1.37: URANIUM Alternatives to Private Property 1.State of Nature: (Can Use Power to Exclude) 2.Communal Ownership No one can exclude others completely In practice, often variants of First in Time Common examples not found in the excerpt?

50. DEMSETZ SECOND THESIS DQ1.37: URANIUM Alternatives to Private Property 1.State of Nature: (Can Use Power to Exclude) 2.Communal Ownership (Can’t Exclude/1 st -in-Time) 3.Can Have Non-Communal State Ownership Like Private Property BUT Gov’t Management E.g., Military Bases

51. DEMSETZ SECOND THESIS: DQ1.37 Gradations of Private Property  Communal : Examples (Pretty Strong Private Rights) (1) Songs under copyright: Can’t perform for $$ or copy text w/o permission/$$ Can’t limit singing in shower, etc. (2) Farmers’ Land after State v. Shack Can exclude most people for most purposes Limits on right to exclude to meet needs of MWs

52. DEMSETZ SECOND THESIS: DQ1.37 Gradations of Private Property  Communal : Examples (Pretty Weak Private Rights) (1) Perfumes, Clothing Designs: Anyone can copy formula/design & sell Can’t lie about source (pvt property in trademark). (2) Air Generally anyone can use oxygen, nitrogen, etc. Some limits on use if creates identifiable pollution

53. DEMSETZ SECOND THESIS Over Time, Process Described in 1 st Thesis Leads to More and Stronger Private Property Rights Why? Demsetz: Private Property More Efficient Than Communal Property