Nuisance
The problem of nuisance is that so many nuisances fit Coase's model of reciprocal injuries: usually, it is possible to see either party as injuring the other. We can see the problem as my loud party or your oversenstive ears, as my pond or your mineshaft, my desire to make a product or your desire to live in an unrealistic Arcadia.
How do you decide who must pay to do what they want and who must be paid to stop doing what they want to do?
Priority doesn’t work. It gives the first arriver too much ability to impose costs on neighbors. Suppose my ancestors arrived in 1702 and bought a 3x4 plot of land and used it for a very smelly dung heap or radioactive dump, rendering the surrounding 2 counties worthless. How long should I be entitled to impose on my neighbors like that? Just because I’ve done something unreasonable for a long time isn’t a reason I should be allowed to do it forever, is it?
More generally, just because someone has been doing something rotten a long time doesn't mean they have a right to continue – on the contrary, often it means that it is time to stop. Even if the action or use isn't intrinsically rotten, if it conflicts with other people's desires, surely there comes a point at which it is someone else's turn. For every claim of priority, there is an equal and opposite claim of "abuse" or "taking turns".
Maximizing value for all concerned ("highest and best use") is often hard to calculate and somewhat disrespectful of prior uses: clearly the 2 counties without the dung heap are worth more than with it. But if that alone is enough reason to bar the dung heap, nothing is left of the property notion that property owners have a range of discretion as to what to do with their property.
Market bidding doesn’t work: can’t bid until we know what the background rule is. Some Coasians (but not Coase himself, I think) have claimed that the Coase Theorem suggests a solution to the problem: just assign a clear right to anyone and then allow bargaining. But in practice, that solution has a serious reverse-Robin Hood aspect to it. Once we recognize the diminishing marginal utility of money (that is, the rich are willing and able to spend more to get smaller advantages and, conversely, must be paid more to give up less) and that opportunity costs are quite different from real costs, it should be clear that the results of the bargaining will be determined by the initial rule. Moreover, the rule has immense moral power (it tells us who is acting reasonably and who is being a jerk) and ordinary human beings are more likely to argue for their rights than to pay someone else to stop being a jerk (we call those kinds of payments "extortion" in ordinary English). It is not bargaining but the rule that is of primary importance, so we cannot escape coming up with a rule.
Here is an example. Federal Heights is a fancy suburban neighborhood, with frat row in the middle of it. Predictably, there are regular conflicts between fraternity residents – who would like to be able to have loud parties – and their neighbors – who would like to be able to sleep at night or sit in quiet backyards in the evening. As Coase points out, either side can be viewed as imposing on the other. The problem is more that the two uses are incompatible than that one is right and the other is wrong.
But, contrary to Coase, it matters enormously who is imposing on whom. If the frats are imposing on Federal Heights, then they should stop. In a free country, of course, they should also be allowed to buy the right to impose, if they can find a willing seller at a price they are willing to pay. On the other hand, if Federal Heights is imposing on the frats, then the neighbors should be required to pay for the costs they are imposing on the frats. The question is who is imposing on whom – and we don’t know that until we know the background rule.
Priority ('we got here first' or 'moving to the nuisance', 'why did you move next to a frat house if you wanted quiet' or 'my house (and my predecessor in interest) predate the frats') doesn't help here, as you can see by looking at the reverse situation, where someone benefits from a neighbor's actions. Thus, if a homeowner buys at the edge of a suburb, and the suburbs grow, making the land more valuable; or buys in the center city, and the Symphony improves its offerings, making the land more valuable, the homeowner is entitled to the profit. We don't charge the homeowner for the benefit. Similarly, if a Federal Heights homeowner bought knowing that the frats are there, knowing that the law makes noise illegal, knowing that the law if enforced would make the home more valuable, and knowing that the low values make the neighborhood more interesting, then the homeowner is entitled to the profits of enforcing the law and selling. But if the homeowner is demanding that the frats stop using their land in a legitimate fashion, then the homeowner ought to PAY for the profit it expects.
This is the classic Coasian problem of conflicting uses again. Coase’s solution is to see who would bid more: the homeowner for quiet and increased land value or the frat for noise and parties. He would then (without bids) give the right to the high bidder and allow the low bidder to buy it (thus protecting to some degree against incorrect court decisions).
But note the high stakes in the real world: Coase assumes no transactions costs and equal buy and sell prices. In reality, I doubt the frats would be willing to pay a neighbor one cent to stop interfering with their sacred right to urinate on the park in front of her house. Similarly, while a rich neighbor was willing to pay a lawyer a substantial sum to remove the noisiest house, I’d be surprised if she would have agreed to pay half that to aircondition (and thereby soundproof) it: her view was, I think, that she shouldn’t have to pay bribes – or extortion – to frats to get them to obey the law.
In this circumstance, there will be no bargaining, just law (or lobbying to change the law).
Ultimately, the courts have no choice but to decide which uses are normal, which are tolerated deviance, and which are not tolerated.
Normal uses I have as of right – and in this country, the basic one is the right to build a suburb. If you want to stop me, you have to pay me: buy my land or buy my development rights. In the West, running cattle without a fence is usually a normal right. In a suburb or in the East, it is not. Putting pesticide on my lawn, regardless of the effects on your birds, is a normal use. Building a high rise is a normal use under the common law, although most regions of the US have changed this by statute (zoning). If I comply with the zoning law, I can build a building even if it blocks your view or your sunlight or ruins your pleasure in some other way.
Tolerated uses I can do so long as I don’t bother other people in their use of their land. I can walk around naked, so long as I keep my window shades closed. I can have loud parties, according to the noise ordinance, so long as I keep the noise within my boundaries. I can build a brick kiln, or put a pond on my land, so long as I keep the smell or water within my boundaries.
BUT, I can also continue my tolerated use even if I do bother others, so long as I pay damages. If the brick kiln's neighbors are unhappy, what they are entitled to is the monetary value they lose by having the brick kiln there. If the kiln is really socially useful, it should be able to pay that to its neighbors and still make money. Reversing the cattle fencing rule doesn’t mean that we condemn ranchers; it just means that they have to pay for the fences rather than their neighbors.
Note that this is NOT the reverse of the normal use. If I want to use my land for a normal use and I refuse your offer of thirty times market value to stop – I’m entitled to proceed. I have the same right to use my land for a tolerated use regardless of your views: you still can’t stop me unless I agree to a price. But I will have to pay you the market value of the damage I cause you. In effect, the user can buy the right to use at market price – regardless of whether the other party wants to sell.
Forbidden uses allow the neighbors to close it down without regard to damages or market price. The court will give me an injunction, not damages, to stop you from running a bawdy house next door. That means that I can stop you – and you need to offer me whatever it takes (not the market price) to convince me to waive my rights. This is the reverse of normal use.
This three-fold classification is taken largely from Calabresi & Melamed, Property Rules, Liability Rules and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089 (1972) (Link is to Hein-on-line, which will only work on campus).
The deeply troubling issue is how a court, or indeed any other governmental institution in a decent society, can classify uses when there is no consensus. "Normal" uses are not self-evident or natural or prescribed by some extra-legislative authority to which a court can defer, unless the court is simply going to become an unreasoning instrument for privileging the status quo. But legislative decision-making is no solution either: majority rule is hard to defend, since the minority can usually find a different set of electoral boundaries under which it would be a majority, or it can point out that justice usually requires proportionality rather than winner-take-all, either of which make the majority rule simply arbitrary power. But is there any other alternative? See my article The Counter-Majoritarian Difficulty: Judicial Decision-Making in a Polynomic World, 53 Rutgers Law Review 781 (2001) for more.
-Nov '06