Economists disagree on many issues — is the Fed raising interest rates fast enough? But there is near unanimity on others — trade can benefit both nations and fosters efficient resource use; emissions fees are an efficient way to limit pollution.
And that Nobel Laureate Ronald Coase was correct that the exact way property rights are defined is not as important as that the definition is clear to all affected. The problem with this truth is that clearly defining property rights is tricky and other conditions must be true for it all to work.
Two recent cases illustrate this. In both, the issue of “adverse possession,” or what’s commonly known as “squatter’s rights,” come into play; this is where a trespasser who has occupied, used and maintained a property over a period of years can legally claim ownership.
Let’s look at the first case: More than a century ago, developers laid out my pleasant St. Paul neighborhood of St. Anthony Park. Streets curve, and the terrain undulates pleasantly. Lots were platted and sold, but their lines were not always well recorded or monumented.
In one case, someone built a house on a knoll much above the street. The city of St. Paul leveled its adjacent lot down for a library. A family enjoyed their the knoll-top home and the city had a near-street-level library and open space. The exact property line passed from memory. The residence was sold and bought multiple times based on the city plat and a recorded description without anyone marking the ground.
In the 1990s, in the course of adding to the library, the city said it did not own a strip of land at the top of the steep rise separating the two properties. Those homeowners eventually sold the house. As repeatedly before, a new family bought it based on good faith representation of what land was included. They improved the property with beautiful landscaping. It is now a showplace.
They wanted to cap their beautification with a new fence on the property line. In an overabundance of good faith, they hired a surveyor to check the location. He concluded their plans would include a few hundred square feet of land that really belonged to the city.
It soon became an issue in the neighborhood. Many sympathized with the homeowners while others opposed transferring public property to a private party. A neighborhood usenet clogged with messages. We have had public meetings and letters have gone to city councilmembers. The issue pends.
The second case involves a widow (my mom) who bought a farm near Chandler, Minn., in 1958. A 100-foot right of way for a Milwaukee Road branch line transected it. On the western edge against a county road, the railroad also had seven acres of abandoned gravel pit. Local graybeards said it was last used in 1913. Now people came to dump trash. This occasionally included paint thinner, body shop solvents and insecticide dregs, including nasty organophosphates or chlorinated hydrocarbons. One was chemically very close to the Zyklon B gas used in Nazi extermination camps.
Chemicals did not bother a colony of rats that lived off recent dumping. The recreational pleasure experienced by adolescent boys who came to shoot rats was the only benefit the tract provided to society other than as a dump.
Then Chandler began charging 50 cents to use its town dump. “Promiscuous dumping” in the pit-enclave in the widow’s farm burgeoned as did the rat population. Paper trash, including that from the local barber, blew into adjacent fields.
My mom stopped the putt-putt car of the railroad’s section maintenance gang to ask the boss that the railroad fence off the dumping area. She talked to the depot agent who covered Fulda to Pipestone. Nothing happened, so she informed the same railroad employees she would do it herself.
She paid a contractor for doze ground level enough to build a fence. She and her 12-year old son (me) sweated in the August sun putting posts in stony ground. The railroad workers waved amiably as they putted by. She cajoled the county government to erect “No Dumping” signs on their right-of-way. My mom finally had what diplomats call “a full and frank exchange of views” with him in which she specified exactly where, anatomically, the next trash he left would end up. Over time, dumping ended, grass seed took root and eventually steers had a few days grazing each year. The rats moved to a better biome.
Ten years later, we decided to pasture sheep there. On request, the railroad complied with its legal obligation to furnish woven wire to replace the barbed that sufficed for bovines. The putt-putt car stopped and the section gang courteously unloaded several rolls right by the fence erected by the widow and son.
Three years later, I, now the owner, erected a 60 foot long corn crib. Again, the friendly section gang waved cheerily each time they putted past.
Then the frequently bankrupt CMSP&P railroad abandoned the line. To minimize legal costs, they proposed selling all their land in Murray County to an association of landowners that would, in turn, parcel it out. Mindful of much past work and expense, I consulted his lawyer and sent certified letters to the railroad and new association saying I would pay for the 100 foot strip, but that the additional seven acres, under the doctrine of “adverse possession” no longer clearly belonged to the railroad.
The letter was ignored, the property deeded from railroad to association and the deed duly recorded in Slayton. The lawyer said there was ample evidence to win in court — if we wanted to sue the association. I reluctantly wrote out a much larger check than he thought just.
What would Coase say about these cases? And why all the laborious detail?
The answer is that while there is some ambiguity of ownership, there is a centuries-old body of law with clear precedents and legal tests to settle situations like these. The law is pretty clear that in both cases, the adjacent landowners would win in court. Most details given would be evidence in court that legal tests for a change in ownership had been met. Others show that society as a whole was improved when the property fell under the stewardship of the adjacent owners.
The problem is not insufficiently-defined property rights, it is rather “transaction costs.” Coase is only correct when the transaction costs of settling disputes are very low. But, as my lawyer told me in 1979, “You will win in court but suing will cost you more than you would pay to just buy the land.” An objective observer of the pending St. Anthony neighborhood case notes: “The city has lawyers on staff and the family doesn’t.” While Coase’s underlying theorem is true and important in designing market-based economic systems, real-life cases where transaction costs end up being the determinant are myriad.
That may cause unfair outcomes, but not necessarily hurt efficiency. I lost a couple thousand dollars that went to already abused creditors of the railroad. But the land has been used in a manner beneficial to society, especially those who appreciate a good lamb chop or safe drinking water in rural towns.
The St. Anthony homeowners on Como may not get title. But I doubt the city will cut off its nose to spite its face by erecting its own fence to deny them a few square feet of land that the public could only access if they have an alpenstock and mountaineering skills. Yes, the homeowners eventually will have to sell a house on a lot somewhat smaller than the one they paid for. But they may be able to use the disputed tract as prior owners did over a century and as they did before these nudged a sleeping dog. So no tragedies are involved in these cases.
Transaction costs underlie the old retort “so sue me!” They lean to injustices and inefficiencies. It benefits society if such costs can be minimized. But there is a difficult balance. It should not be too easy to sue people or there will be myriad harassing suits. But it should not be too hard or the stronger have another edge over the weaker.