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Abstract:
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"The commons presents weighty problems of far-reaching significance, as the large and growing literature in this area attests. While problems presented by common pool resources and common property are often resolved or avoided through nonlegal means, legal entitlements constitute an important set of options for structuring responses to commons dilemmas. Moreover, entitlements (whether de jure or de facto) are always involved in setting the background conditions against which commons interactions play out, and are always at least implicitly responsible for contributing to the conditions that generate commons tragedies. The categorization of entitlements into those protected, respectively, by property rules and liability rules has yielded an intricate body of legal scholarship of great relevance for the engineering of solutions to conflicting property interests. Curiously, however, legal scholars have done relatively little to apply this important body of sophisticated scholarship to the commons setting. Instead, those studying options for protecting entitlements typically use stylized examples featuring a 'polluter' (usually a factory) and a 'victim' (usually a laundry or homeowner). Unique features of the commons situation, such as the fact that members of a commons are potential polluters and potential victims at the same time, alter the analysis in important ways and open up untapped opportunities for devising innovative solutions to commons problems. The paper is divided into three parts. In Part I, I provide an overview of the existing literature on entitlements, discuss how commons situations differ from the standard polluter/victim interaction, and show how the six 'rules' that have been identified for protecting entitlements would translate into a simple commons situation involving a residential neighborhood. In Part II, I discuss the signature difficulties associated with these various solutions. Each of these difficulties is fundamentally rooted in heterogeneity in the subjective valuation of entitlements. Property rule solutions cater to heterogeneous subjective valuations by giving each entitlement-holder an absolute veto power over transfers, but this structural solicitude to valuation differences also provides a strategic opportunity for 'holding out' -- that is, pretending to have a different valuation than one actually has, in an effort to capture more of the surplus associated with transfer. Liability rule solutions (and their mirror image, 'put options') avoid this latter problem by allowing unilateral transfers on the initiative of just one party. However, this means potentially overriding true subjective valuations to effectuate transfers that are not, in fact, efficient. In Part III, I discuss ways to adapt or mix these mechanisms to better manage these twin risks in the commons setting, and further consider the impact that the choice of legal entitlements may have on nonlegal mechanisms such as norms for controlling the commons."
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