Paper instructions:
- Suppose that two people choose to litigate a dispute. Should the law presume that if two parties
are prepared to litigate, transaction costs must be high, and therefore the court should choose
damages as a remedy, not an injunction? - Suppose that you buy an expensive solar collector and put it on your roof. Later the owner of a
neighboring tract puts up a building that blocks your collector. What legal recourse would you
have in an efficient system of property law? - Suppose the statute of limitations for adverse possession is 10 years. After 9.9 years of trespass, owners retain full rights, but after 10 years of trespass, owners lose all of their rights. Instead of owners losing their rights abruptly at the end of 10 years, the statute could be written so that the rights depreciate gradually over time. For example, the trespasser could be granted a 10% interest in the property for each year of adverse possession, so that after one year the trespasser would own 10% of it and after 10 years the trespasser would own all of it. Compare the efficiency of the “discontinuous rule” and the “continuous rule”.
- The Federal Government provides disaster insurance that helps people to build vacation homes in places subject to flooding, such as sand dunes. Assume the government wants to protect the environment by preventing the construction of homes on a specific sand dune near the ocean. If the government takes private property on the sand dune, either by condemning it or by imposing
regulations that forbid any construction, should compensation include or exclude the increase in the value of the land caused by government flood insurance?
2 - In the case of Pendoley v. Ferreira (345 Mass. 309, 187 N.E.2d 142, 1963), a residential development encroached on an established pig farm, causing residents to complain about the offensive smell. The residents sought an injunction to have the farm shut down.
a. Suppose transaction costs between the residents and the farmer are low. Does it matter for efficiency whether the court grants or denies the injunction? Explain.
b. Now suppose transaction costs are high. What information does the court need to know to decide whether granting the injunction will lead to an efficient outcome?
c. Propose a remedy based on a liability rule (who is liable if anyone, for damages, and in what proportions). What information does the court need to know for your proposed remedy to achieve an efficient outcome? - Consider a piece of property that is jointly owned by two individuals, each with one-half share. Suppose that, in order to sell, owner 1 requires $3,000 for his half share, but owner 2 requires
$6,000 for her half share. A buyer arrives and offers $10,000 for the entire property.
a. If the two owners can bargain with each other costlessly, do you expect a sale to occur (assuming both owners have to give their consent)?
b. Suppose instead that the two owners cannot bargain with each other (for example, they are a divorcing couple). If each is entitled to one-half of the proceeds, do you expect a sale to occur in this case?
c. Describe the trade-off involved in a rule that allows either one of the parties to “force” a sale of the jointly owned property when they cannot come to an agreement.
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