Academic journal article Contemporary Economic Policy

Constitutional Political Economy: Property Claims in a Dynamic World

Academic journal article Contemporary Economic Policy

Constitutional Political Economy: Property Claims in a Dynamic World

Article excerpt


In their book The Reason of Rules: Constitutional Political Economy, Brennan and Buchanan (1985, p. 2) note, "If rules influence outcomes, and if some outcomes are 'better' than others, it follows that to the extent that rules can be chosen, the study and analysis of comparative rules and institutions become proper objects of our attention."

The popularity of game theory in economics is strong evidence that institutions (rules) matter; for what is a game but individual choice embedded in a structure of working rules that define domains of choice open to economic agents? And as Brennan and Buchanan note, the study of rules (institutions) must now be accorded a central place in economic theory. That said, the question turns to which rules are pertinent to particular economic activities. Rules of contract, bankruptcy, and credit address transactional insecurity, while rules of property address possessional insecurity. Societies choose to situate different types of rules at different levels in recognition of their differential importance to the going concern called the nation-state. We might think of constitutional political economy as concerning the rules at the very highest level in society. In contrast, statute law and administrative rules occupy lower levels in the legal hierarchy. One aspect of this differential location of rules concerns the ease with which they may be changed. Administrative rules can be changed quite easily, while constitutional rules are changed only with great difficulty.

The interest in rule structures can be thought of as concerning signals - rules indicate domains of choice, and new rules signal that existing domains of choice have been changed. The problem for the economist is how to think about new signals (rules). Our maximizing models work best when rules (institutions) can be thought of as fixed and exogenously determined. However, all societies must allow for change, while recognizing that "too much" change will confound expectations. Property rights are thought to represent a set of rules that do not change, and if they must change, then owners should receive compensation. But of course even property rights have changed considerably, and compensation has not always been forthcoming. At one time, slaves were the private property of their owners, and wives were considered the property of their husbands. These changes in presumed property rights were unaccompanied by compensation.

The American Constitution contains a "property clause" in the form of the Fifth Amendment that declares, in general terms, that private property may not be taken for public use without the payment of just compensation to the owner. Here is a rule at the very highest level in the American system of governance. The reason for this particular rule is obvious. First, it prevents government entities from taking arbitrary and capricious action against the assets of the citizenry. Second, it forces governments to pay for what they say they need to carry out their several functions. Finally, this particular institutional arrangement ensures that no single person is made to bear the cost of the necessary functions of society; compensation spreads the costs among the taxpayers in the pertinent jurisdiction. There are now several excellent books on the economic issues associated with takings (Fischel, 1995; Knetsch, 1983; Miceli and Segerson, 1996).

There are important legal decisions that support the strict interpretation of the Fifth Amendment (Pennsylvania Coal Co. v. Mahon, Lucas v. South Carolina Coastal Council, and Nollan v. California Coastal Commission). Yet, a number of legal decisions by the U.S. Supreme Court (and a few state supreme courts) pertaining to private land and associated assets find otherwise (Just v. Marinette County, Keystone Bituminous Coal Ass 'n v. DeBenedictus, Miller et al. v. Schoene, Penn Central Transportation Co. v. New York City, and Babbitt v. …

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