Trespass, Nuisance, and the Costs of Determining Property Rights

Merrill, Thomas W.

The central thesis is that when the costs of transacting are low, the legal system will gravitate toward rules that determine entitlements at a low cost -- such as the strict liability rule of trespass. The combination of low transaction costs and low entitlement-determination costs will maximize the extent to which conflicts between competing uses of land can be resolved by market transactions. In contrast, when the costs of transacting are apt to be high, the legal system will incline toward rules for the determination of entitlements that are more expensive -- such as the balancing or cost-benefit approach of nuisance. When market mechanisms fail, these more expensive entitlement-determination rules are necessary in order to give judges the needed discretion to adopt what they perceive as the best "compromise" solution (the efficient solution) to land use disputes.

Although I will use this economic model primarily to explain the differences between trespass and nuisance and the sorts of intrusions covered by each action, the model has the potential for broader application. In Section IV, I will survey some other issues involving the rights to exclude, use, and transfer property and will suggest that the relationship between transaction costs and entitlement-determination costs can account for some of the legal doctrine in these areas. Finally, although the main thrust of the article is positive in its orientation, in Section V I will raise some normative issues for those who believe that the legal system should be concerned, at least in part, with the maximization of social utility or wealth. Here, I argue that low-cost mechanical entitlement-determination rules play an important role in facilitating the exchange and modification of property rights -- a role often overlooked by commentators who view them simply as decisional rules to be applied in litigation.


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The Journal of Legal Studies

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University of Chicago Press
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November 6, 2015