The Boundaries of Private Property

If your house and fields are worth more separately, divide them; if you want to leave a ring to your child now and grandchild later, split the ownership in a trust. The American law of property encourages owners to subdivide resources freely. Hidden within the law, however, is a boundary principle that limits the right to subdivide private property into wasteful fragments. While people often create wealth when they break up and recombine property in novel ways, owners may make mistakes, or their self-interest may clash with social welfare. Property law responds with diverse doctrines that prevent and abolish excessive fragmentation and keep resources well-scaled for productive use. Recently, however, the Supreme Court has begun assigning a private property label to an increasing range of fragments. By protecting too many fragments, the Court paradoxically undermines the usefulness of private property as an economic institution and constitutional category. The danger with fragmentation is that it may operate as a one-way ratchet: Because of high transaction costs, strategic behaviors, and cognitive biases, people may find it easier to divide property than to recombine it. If too many people gain rights to use or exclude, then bargaining among owners may break down. With too many owners of property fragments, resources become prone to waste either through overuse in a commons or through underuse in an anticommons. In well-functioning property regimes, legislatures and courts prevent such waste by drawing boundaries that constrain owners\u27 choices about fragmentation. Outside the boundaries are commons and anticommons property; inside are forms of private property. I intend the boundary principle to refer to the legal doctrines that separate these property categories from each other and help to keep resources well-scaled for productive use. The boundaries among different ownership forms can be usefully understood with reference to Figure 1. The thick vertical lines in Figure 1 represent the range of private property forms available in a well-functioning society at any given time. Outside one boundary, in an open-access commons, many people own valuable rights to use a resource, such as fishing the ocean or polluting the air. Property law has traditionally treated these rights as non-private property and abolished them without compensation when necessary to overcome a tragedy of the commons. Outside of the other boundary, in a full-exclusion anticommons, many people own valuable rights to exclude others from a resource. Paralleling the commons example, property law may also view such rights to exclude as non-private and abolish them without compensation when necessary to avoid an anticommons tragedy