Coase's First Question: When Should There Not Be Property Rights?

Lessig, Lawrence, Regulation

THERE ARE TWO KINDS OF COASEANS: "proper-Coaseans," and "property-Coaseans." Both adopt the framework of analysis described by Nobel Prize winning economist Ronald Coase. But a property-Coasean simplifies that framework in one important way: For a property-Coasean, property is a simple. Every resource that can be, should be the subject of property. In other words, no resource capable of being propertized should be left free.

For Coase, however, property is not a simple. As he famously wrote in a 1959 Journal of Law and Economics article about the Federal Communications Commission, "All property rights interfere with the ability of people to use resources. What has to be insured is that the gain from interference more than offsets the harm it produces." Thus, before deciding in whom property rights for some resource should vest, a proper Coasean should determine whether the resource should be the subject of property at all. That decision should be based upon whether propertizing the resource would produce a gain that "offsets the harm it produces."

Bruce Owen is a property-Coasean. His recent Regulation article "Assigning Broadband Rights" (Summer 2004) considers two resources: "the right to control access to a local broadband system" and "the right to determine the technical standards that describe which transmissions will or will not be processed for local distribution." And while he initially raises the idea that such rights can be "assigned ... to no one," that possibility quickly disappears from the balance of his analysis. Instead, with each "right," he immediately moves to consider who, between the owner of physical assets and users of the network, should have the right he has identified. So framed, the question has a simple answer: Because the transaction costs of fixing a mistaken allocation are less if we allocate the rights first to the owners of the physical network, and because the owners of the physical network would be in the best position to internalize any gain that might come from adding different, or proprietary, protocols, it follows that they, rather than users, should be granted the exclusive right in "broadband rights."

I do not want to question the analysis that Owen has given. My question is about the analysis he omits: whether the resources that he has identified should be subject to a property regime at all. For it is increasingly common among some economists to forget the first step that Coase took.

PRODUCTIVE AND NONPRODUCTIVE PROPERTY RIGHTS

A "property right" grants the owner an exclusive legal power to force the world to negotiate with him before his control over the resource protected by the right is displaced. By so doing, it is a device that facilitates assignment of a resource to its highest-valued user through the allocation mechanism we refer to as the market.

No one serious denies the general utility of property rights. No one …

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Publication information: Article title: Coase's First Question: When Should There Not Be Property Rights?. Contributors: Lessig, Lawrence - Author. Magazine title: Regulation. Volume: 27. Issue: 3 Publication date: Fall 2004. Page number: 38+. © 2009 Cato Institute. COPYRIGHT 2004 Gale Group.

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