Posted by: sambeswick | 20th May, 2020

Knowledge & Normative Convergence in Property Law

Post by Malcolm Lavoie.

One of the most intriguing features of New Private Law scholarship is its recognition that diverse normative accounts often converge in explaining core private law doctrine. For instance, the right to exclude as an incident of ownership can be understood in consequentialist terms as a means of accounting for information costs, or alternatively in deontological terms as a way to protect a sphere of individual autonomy. Similarly, aspects of tort law that have traditionally been conceptualized in non-consequentialist terms, such as the bilateral nature of tort obligations as a relationship between the doer and sufferer of a wrong, can also be explained on economic grounds when an account of information costs is introduced. In these examples, consequentialist accounts of the law (in both cases, work by Henry Smith) converge with deontological approaches in explaining the basic structure of private law.

A recent article of mine exploring the implications of an under-appreciated justification for property rights provides an interesting (and unanticipated) example of this kind of convergence. In outlining a consequentialist argument, I came to a new understanding of an approach to property doctrine that had previously primarily been understood in deontological terms.

My article is about the ways in which property systems decentralize decision-making about physical resources. Property rights devolve decision-making authority to a dispersed pool of owners, who in many cases have local knowledge relevant to their resources. This local knowledge can take many forms. For instance, it may include knowledge about the physical characteristics of the resource, local conditions relevant to the use of the resource, the needs and preferences of those who are likely to use the resource, or local norms relevant to its use. Importantly, this kind of knowledge is often held by those who are in close physical proximity to the thing, or involved in an activity with it. The owner of a house, for instance, is often better positioned than anyone else to know how its rooms are best allocated, what repairs are most urgent, and what renovations would be most useful, along with many other questions dependent on physical context.

Since it is often difficult and costly for others to acquire and act upon this kind of knowledge, for instance through a centralized bureaucracy, effective resource management requires a means of recognizing decision-making authority exercised by parties with local knowledge. Property rights have traditionally served this function, channeling valuable local knowledge into decision-making about resources. Owners often have local knowledge or are well-positioned to acquire it. This argument can supply a complementary justification for the institution of private property. By channeling local knowledge into decision-making, property rights can yield better decisions and better outcomes according to a range of consequentialist criteria.

The argument that property rights help owners to take advantage of local knowledge is not novel, having been made most prominently by F.A. Hayek (though elements of it are also present in work by Harold Demsetz and Robert Ellickson). While Hayek was focused on the role of property in facilitating coordination in a market economy, I argue that the knowledge-channeling function of property is actually much more basic and generalizable than that, applying even in cases, such as with respect to inalienable resources, where owners do not interact with markets. For instance, an Indigenous community with title to land may not engage in commercial transactions with the land, but can nevertheless draw on local knowledge in making decisions about the use and management of the land.

In addition to outlining the knowledge-channeling function of property, my article also discusses the ways in which this approach can help us understand property doctrine, including notably the agenda-setting authority of owners. Larissa Katz has previously argued that the exclusive right of an owner to set the agenda for a resource is the essential feature of ownership. Katz makes the argument primarily in descriptive terms, claiming that agenda-setting authority for a resource is more central to the idea of ownership than other incidents, such as the right to exclude. To the extent that Katz grounds her theory in a normative justification, it is in non-consequentialist, autonomy-oriented terms: An owner’s agenda-setting authority upholds important personal autonomy interests of the owner.

Katz does not seek to justify her theory on consequentialist grounds (as far as I am aware). And indeed, the most prominent consequentialist accounts of property rights may seem unpromising for this purpose, given that they tend to emphasize the right to exclude as the most significant feature of property rights. Besides arguments based on the information costs created by the property system itself, alluded to above, other consequentialist arguments for property also emphasize the right to exclude. For instance, one argument holds that property rights create incentives to work and produce by ensuring that the products of one’s labour are not appropriated by others. Why sow today when someone else can come along and reap tomorrow? Having a property interest in the crops helps solve this problem by removing the threat of the interloper. Another argument is that property rights avoid the overuse of resources that would occur under an open-access regime. Why limit one’s own use of a resource when there is no assurance that others will do the same? Again, property can provide an answer, by allowing an owner to control access. According to both of these arguments, it is the right to exclude that provides the decisive shift in incentives, helping to align them with what is socially optimal. Other incidents of ownership serve a subsidiary function. They are allocated to the owner because it usually makes the most sense for these rights and powers to be in the same hands as the party with the right to exclude.

This is where the normative convergence I alluded to earlier comes in. The local knowledge argument for property puts agenda-setting, rather than exclusion, at its core. A property interest can serve to channel local knowledge into resource-based decision-making only if the owner has the authority to make agenda-setting decisions about that resource. To the extent that property is justified by its ability to devolve decision-making to parties who are or who are likely to become knowledgeable about their resources, it is the owner’s agenda-setting authority that is central to the argument. Other incidents of ownership, such as the right to exclude, are often useful in upholding the owner’s agenda-setting authority, but they are not as central to the argument as agenda-setting authority. An owner can channel her local knowledge into decisions about the resource without exercising the right to exclude, but not without exercising agenda-setting authority.

I don’t pretend to have thought through all of the implications of this consequentialist justification for Katz’s theory of ownership. For now, I will simply observe that this seems to provide another example of converging normative accounts of private law doctrine. Like the right to exclude, the agenda-setting authority of owners can be understood as central to the concept of ownership based on both consequentialist and non-consequentialist normative arguments. An understanding of the law previously conceptualized primarily in autonomy-oriented terms can also be given a consequentialist framing. Interestingly, like the other examples of convergence identified above in the work of Henry Smith, this one too depends on taking knowledge and information seriously.

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