Property as Modularity

Merrill, Thomas W.

Professor Henry Smith’s Property as the Law of Things urges a return to an older conception of property as rights with respect to things — and justifies this in terms of a very new conception of property based on modularity. I fully agree with his emphasis on the centrality of things in the law of property, the in rem nature of property, the primacy of exclusion rights, and the importance of information costs in understanding the structure of the property system. My reaction to the idea that property systems can be understood in terms of modularity is largely positive with reservations. The modularity model is an advance on the simple “optimal standardization” idea we jointly developed for explaining the numerus clausus or limited number of forms of property. One of the mysteries associated with the numerus clausus is that the same piece of property is governed by very different rules in terms of degree of standardization depending on who the relevant audience happens to be. The proverbial Blackacre presents a simple rule of exclusion insofar as the audience of strangers is concerned, a complex of formal rules when potential transactors enter the picture, and a potentially limitless diversity of rules and norms when the relevant audience consists of insiders such as co-owners. The modularity model Smith sketches provides a functional account that helps explain this important structural feature of the property system. Nevertheless, I have my reservations about whether modularity — or perhaps any structural metaphor — offers a fully adequate picture of property. Structural metaphors can help us better understand the form of property rights. But structural metaphors fail to capture the powerful set of incentives built into systems of private property — the feature of ownership that drives owners to want to rearrange the modules to make them more valuable and to want to work harder to extract as much value from the existing arrangement of modules. This incentivizing effect is a function of the exclusion right that lies at the heart of property. Exclusion does more than minimize information costs for third parties. Even more importantly, it gives the owner residual managerial authority and residual accessionary rights — the rights to sow and to reap what has been sown. The modularity model ignores or at best fails to highlight this feature of property, which is central to understanding the power and persistence of this institution.


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November 9, 2015