The Yale Law Journal

November 2001

What Happened to Property in Law and Economics?

Thomas W. Merrill and Henry E. Smith
111 Yale L.J. 357 (2001)

Property has fallen out of fashion. Although people are as concerned as ever with acquiring and defending their material possessions, in the academic world there is little interest in understanding property. To some extent, this indifference reflects a more general skepticism about the value of conceptual analysis, as opposed to functional assessment of institutions. There is, however, a deeper reason for the indifference to property. It is a commonplace of academic discourse that property is simply a "bundle of rights," and that any distribution of rights and privileges among persons with respect to things can be dignified with the (almost meaningless) label "property." By and large, this view has become conventional wisdom among legal scholars: Property is a composite of legal relations that holds between persons and only secondarily or incidentally involves a "thing." Someone who believes that property is a right to a thing is assumed to suffer from a childlike lack of sophistication--or worse.
One might think that law and economics scholars would take property more seriously, and at first glance this appears to be true. Analysis of the law from an economic standpoint abounds with talk of "property rights" and "property rules." But upon closer inspection, all this property-talk among legal economists is not about any distinctive type of right. To perhaps a greater extent than even the legal scholars, modern economists assume that property consists of an ad hoc collection of rights in resources. Indeed, there is a tendency among economists to use the term property "to describe virtually every device--public or private, common-law or regulatory, contractual or governmental, formal or informal--by which divergences between private and social costs or benefits are reduced."
In other times and places, a very different conception of property has prevailed. In this alternative conception, property is a distinctive type of right to a thing, good against the world. This understanding of the in rem character of the right of property is a dominant theme of the civil law's "law of things." For Anglo-American lawyers and legal economists, however, such talk of a special category of rights related to things presumably illustrates the grip of conceptualism on the civilian mind and a slavish devotion to the gods of Roman law.
Or does it? In related work, we have argued that, far from being a quaint aspect of the Roman or feudal past, the in rem character of property and its consequences are vital to an understanding of property as a legal and economic institution. Because core property rights attach to persons only through the intermediary of some thing, they have an impersonality and generality that is absent from rights and privileges that attach to persons directly. When we encounter a thing that is marked in the conventional manner as being owned, we know that we are subject to certain negative duties of abstention with respect to that thing--not to enter upon it, not to use it, not to take it, etc. And we know all this without having any idea who the owner of the thing actually is. In effect, these universal duties are broadcast to the world from the thing itself.
Because property rights create duties that attach to "everyone else," they provide a basis of security that permits people to develop resources and plan for the future. By the same token, however, this feature of property imposes an informational burden on large numbers of people, a burden that goes far beyond the need for nonparties to a contract to understand the rights and duties of contractual partners. As a consequence, property is required to come in standardized packages that the layperson can understand at low cost. This feature of property--that it comes in a fixed, mandatory menu of forms, in contrast to contracts that are far more customizable--constitutes a deep design principle of the law that is rarely articulated explicitly. The fact that the in rem aspect of property has largely disappeared from academic discourse has made this latent design principle all the easier to overlook.
This Essay will trace the decline of the conception of property as a distinctive in rem right in Anglo-American thought, and the rise of the view among modern legal economists that property is simply a list of use rights in particular resources. As is the case with law and economics more generally, this view of property finds its roots in Ronald Coase's seminal article, The Problem of Social Cost. Coase implied that property has no function other than to serve as the baseline for contracting or for collectively imposing use rights in resources, and he modeled conflicts over the use of resources exclusively in terms of bipolar disputes between A and B. Wittingly or not, this gave rise to a conception of property as a cluster of in personam rights and hastened the demise of the in rem conception of property.
In order to appreciate Coase's impact on the modern understanding of property rights, we begin, in Part II, with a brief overview of the traditional conception of property and the legal realists' advocacy of the alternative "bundle of rights" conception. Once the stage is set, we then turn, in Part III, to Coase's work, where we take a fresh look at his classic article and a companion piece in an effort to uncover the implicit conception of property rights that animates his theory. We conclude that Coase adopts an extreme version of the bundle-of-rights conception of property favored by the legal realists; in effect, Coase conceives of property in terms of a list of permitted and prohibited uses of particular resources. This is followed, in Part IV, by a selective review of post-Coasean treatments of property in law and economics scholarship, where we find the list-of-uses conception carried forward in a variety of guises. In Part V, we briefly consider some areas in which an explicit recognition of the in rem dimension of property would enrich the understanding of property issues by law and economics scholars. Part VI concludes.