Response to Bork and Landsburg

In a recent post, I argued that Robert Bork, in an old and famous law review article, and Steven Landsburg, in a recent and now infamous blog post, were making two sides of the same point, in both cases arguing that our legal rules (and, for many of us, our moral intuitions) were inconsistent in treating essentially similar cases differently. Various commenters on my post pointed in what I think is the right direction for explaining the puzzle and justifying the legal, and perhaps the moral, difference.

The first step is an old distinction in the economic analysis of law between property rules and liability rules, two different solutions to the problem of efficient allocation. Under a property rule, something belongs to someone and other people can use it only with his permission. The role of the legal system is to impose costs on those who use it without his permission large enough so that they won't. My control over my car is regulated by a property rule, as demonstrated by what happens to someone who steals it and gets caught.

Under a liability rule, in contrast, people are permitted to do things that impose costs on others, but have to pay for them. My use of my car to impose a risk of collision on other drivers is regulated by a liability rule. Unlike the case of a property rule, I don't need their permission to use their cars as possible unintended targets for mine. But if I do dent their cars and it is my fault, I am supposed to pay for the repairs. The role of the legal system is to estimate the cost and make me pay it.

Why do we use property rights to control who drives my car but liability rights to control how it is driven? The standard response is that, under property rights, things are moved to their highest valued use via market transactions—if ownership or use of my car is worth more to you than to me, you ought to be able to offer me a price to buy or rent it that I am willing to accept. Under liability rules, they are moved to their highest valued use via litigation, actual or potential. 

Controlling who drives a car by market transactions is reasonably simple and straightforward, as demonstrated every day by car dealers and rental agencies. Controlling how it is driven would either require me to buy permission from everyone else on the road to impose a cost of damage on their car, if they had a property right not to have such a risk imposed on them, or require them to buy a guarantee from me to drive carefully, if I had a property right to drive my car as I wished, whatever the risk to others. Neither is practical, since what I am imposing is a highly dispersed cost, a very small risk on each of a very large number of people.

Controlling who drives a car by a liability rule would mean that someone in a hurry to get to the airport would be entitled to hotwire my parked car, drive it to the airport, and leave it there—and it would be up to me to sue him for the cost and inconvenience imposed on me. That would create substantial costs, since I would have to identify the guilty party and sue him, and provide a very inaccurate and expensive control mechanism, since a court would have to somehow estimate the cost to me. Some of those problems exist for using a liability rule to control how I drive, but they arise only when I actually run into someone, which (fortunately) does not happen very often, and it is usually obvious at that point who was the driver. So it makes sense to use a property rule to control who drives the car but a liability rule to control how he drives it.

(For a more detailed account, see Chapter 5 of my Law's Order, under the subhead "Property or Liability Rules.")

The discussion so far leaves open one question of some importance: If we use a property rule, who owns the property? From the standpoint of economics, there are two different approaches to answering it.

One is that property should start out belonging to the person who created it, in order that people will have a suitable incentive to create things. The other is that property should belong to the person who can most easily control it, in order to minimize the cost of enforcing property rights.

We use the first rule for deciding who owns my car. It started out as the property of the Honda corporation, which built it, was sold by them to a dealer and by the dealer to me. We use the second approach for deciding who owns me.

One could hold—as Roman law did—that I belong to my parents (actually, under Roman law, my father—or his father if still alive), on the grounds that they created me. The problem with that approach, economically speaking, is that it is easy for me to control myself (at least as long as there are no bowls of potato chips within easy reach), hard for anyone else to control me. If I want my arm to move, I move it. For you to get my arm to move, supposing you are my owner, is a more difficult, indirect and costly process. That, economically speaking, is the argument against slavery.

Sometimes the two approaches are in conflict. Consider the case of copyright law. Giving me the right to control people who want to copy my book and charge them for doing so gives me a suitable incentive to write books. But controlling their copying is much easier for them to do than for me to do. How much easier depends on technology, which is why we have moved, over about a century, from a situation where copyright could be enforced without copyright law, as in the case of English authors collecting royalties for books published in America a century or so ago, to one where it is becoming increasingly difficult to enforce copyright in digital works even with copyright law.

How does all of this apply to the puzzle raised by Landsburg and Bork? Being more prudent than Landsburg, or perhaps less courageous, I start by replacing his example with a less emotionally loaded one that I think raises the same issues.

You happen to know that I am going to be out of town for a few months, perhaps because I have mentioned my plans on my blog. Coincidentally, you are going to be in town for the same few months, in need of a place to stay. Conveniently, one of your hobbies is picking locks. I leave, you move in. Shortly before I return you, being a considerate guest, tidy the place up, leaving it in exactly the same condition you found it in and so, arguably, imposing no cost on me. 

You only make one small mistake—not noticing the video camera unobtrusively located on a high shelf in the living room, plugged in, running, and feeding a very large hard drive. 

Just as in Landburg's example, the act violates existing rights but imposes no material cost. As in that example, it might impose a psychic cost—I may be upset to find that someone else has been living in my house without my permission. And, as in that example, it is illegal. Should it be?

It should. The reason it should is that the use of houses is better allocated by a property rule than by a liability rule. The liability rule, under which you are not liable because you imposed no cost, or at least no cost of a sort reasonably measurable by a court, is difficult to enforce, given that not all empty houses have security cameras running and not all trespassers are easily identified, located and sued. Further, the cost to me is better measured by the price I am willing to accept for the use of the house than by a court's estimate, in part because that includes the subjective cost to me of knowing that my house has been occupied and any secrets it contained, perhaps my stash of porn, revealed, a cost hard to prove or measure in court.

A further argument, pointed out by commenters on my earlier post, is that a property rule makes it possible for me to charge you for your use of my house, which in turn affects my incentive to make the house available—my earlier point about allocating property to its creator. The ability to collect rent on the house when I am not using it reduces the cost to me of spending a quarter visiting at GMU and so makes me more willing to do so—and should, since the availability of the house for you to occupy is a real benefit produced by my absence.

I think I have now answered Steve Landsburg's puzzle. The difference between his example (or mine) of an action that imposes only subjective costs and his example of an activity such as reading pornography, or Bork's of using contraception, that imposes only subjective costs, is not the nature of the harm. The difference is that in the one case the cost is of a sort that can be measured, the action controlled, via a property rule. In the other, it is not. 

More precisely, the property rule under which I have a right to read porn and you can only stop me by offering to pay me not to do so produces its result by ignoring the cost my porn reading imposes on you, since, as with the case of risks imposed by careless driving, including that cost requires an unworkable contract between all of the prudes and all of the would-be consumers of porn. The property rule under which you have a right to forbid me, or anyone else, from reading porn, produces its result by ignoring the cost your ban imposes on me, for the same reason. Neither property rule gets the cost/benefit calculation correct, but the former rule is a great deal less expensive to enforce than the latter, which is an argument for it. 

What about a liability rule? That is the point at which the subjective nature of the harm comes in. It is true that, from the standpoint of economics, all harm is ultimately subjective—having my arm broken or my car dented would not be a cost under sufficiently bizarre assumptions about my preferences. But some subjective costs are a lot easier to measure externally than others. When I claim damages for my wrecked car, there are market prices out there for repairing or replacing it that provide a court with a reasonable basis for estimating the cost. When I announce that your reading of porn, or oil drilling in a wilderness I never plan to visit, inflicts large psychic harm on me, there is no such basis for checking my claim.

I think I have now answered Bork's argument as well as Landsburg's. Insofar as air pollution imposes measurable costs in ill health or increased laundry bills, it is possible to use a liability rule or something similar to measure those costs and charge the polluter for them. But if my use of contraception imposes only immeasurable psychic costs on you, that approach does not work. A property rule takes account of such costs, since they are reflected in the prices people are willing to pay or accept, but a property rule assigning the right to either the would-be user of contraception or the opponent of his use does not work to reflect those costs because of their dispersed nature. And, between the two alternative property rules, there is a strong presumption for the one that libertarians prefer, since it requires no expensive and intrusive apparatus to enforce it.

Bork, unfortunately, is no longer around to read my answer, but Landsburg is, and probably will.

In my earlier post, I commented that explaining why I thought Bork was wrong would require a different and longer post. I have now written it, and it did—about twice as long.