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Article Excerpt
ARTICLE CONTENTS
INTRODUCTION I. HALF-TORTS IN THE CATHEDRAL A. Splitting the Nuisance B. Harm, Luck, and Self-Help C. High Probabilities and Forbidden Ends 1. When Harm Is Certain 2. Bad Acts and Categorical Prohibitions D. Which Activities Produce Risk? E. Reconciling New and Old 1. Entitlement Content 2. Transfer Protocols a. Within-Cell Shifts b. Moves Between Cells 3. Remedies II. SCALING PROPERTY BOUNDARIES A. Boundary Rules and the Risk/Harm Grid B. Property as a Bucket of Gambles C. The Benefits of Boundaries D. Half-Torts as Failures of Scale E. Beyond Real Property III. THINKING IN HALF-TORTS A. Addressing Risk, Addressing Harm B. Responses to Half-Torts 1. Tort Law Responses 2. Regulatory Responses 3. Contractual Responses 4. Property Innovations C. Choosing a Strategy CONCLUSION
INTRODUCTION
For decades, two focal points have dominated the economic analysis of property conflicts--the Coase Theorem, (1) and the entitlement framework set out by Guido Calabresi and Douglas Melamed ("C&M"). (2) Property scholars working in the Coase/C&M tradition view a dispute between a smoke-spewing factory and a suffering neighbor as a reciprocal event (3) that calls for decisions about which party holds the entitlement to pollute and what type of legal protection will be afforded that entitlement. (4) While this elegant, canonical approach has had tremendous staying power, there have been recurring hints in the literature that something important is missing. Thomas Merrill and Henry Smith have suggested that the standard economic account of property conflicts went astray by failing to recognize key characteristics of property rights. (5) My diagnosis is different. The conventional view of property entitlements falters not because it ignores property theory, but rather because it neglects a core insight of tort theory--that risky activities are conceptually distinct from harmful outcomes.
The idea that a tort can be split analytically into two parts--risk and harm--underlies a great deal of torts scholarship and is a central, if implicit, theme in Calabresi's groundbreaking work, The Costs of Accidents. (6) Yet the notion has been all but ignored in property circles. For example, in discussing an "entitlement to pollute," scholars rarely distinguish inputs to pollution (a factory's emission of fumes from a smokestack) from outcomes of pollution (a neighbor's grimy linens or respiratory distress). (7) Instead, "pollution" is viewed as a single unified event that one party or the other receives an entitlement to control. This failure to conceptually separate inputs from outcomes has led to imprecise and inaccurate ways of thinking and talking about entitlements. Property theory has suffered as a result, as has our understanding of how property and torts relate to each other. In this Article, I make a start at bringing the notion of the divided tort--here termed "half-torts" (8)--into the property picture.
Breaking a tort into the components of risk and harm transforms property theory in at least three ways. First, a half-torts perspective generates a more useful and precise way of understanding land use entitlements. In the standard factory-neighbor land use conflict, the law must make decisions about each half of the tort--whether risk production of a given sort will be permitted, and how the costs of any resulting harm will be allocated. Following Ronald Coase, the "resulting harm" can stem from a societal decision to disallow an activity as well from a societal decision to allow it. (9) But the two kinds of harm are fundamentally different. Only the former, the costs associated with prohibition, can be coercively imposed by the state. The latter sort of harm, stemming from permissible risk production, can be intercepted by self-help or luck. (10) By separating risk from harm, this Article offers a reformulation of society's matrix of entitlement choices that not only aligns more closely with moral intuitions and ordinary practice, but also highlights the role of social judgments about the appropriate sphere of coercive force. (11)
Second, the half-torts perspective advances a functional understanding of property as an arrangement designed to charge inputs and outcomes to the account of a single owner. (12) Property boundaries backed by exclusion rights mark out domains in which bets can be made and collected on by the same party. (13) Nonetheless, cross-boundary impacts are commonplace. When risk-producing activities operate at a scale that exceeds the scope of property holdings, (14) half-torts appear on opposite sides of a property line. The property metaphor that best captures these imperfectly scaled attempts to group inputs and outcomes is neither an impenetrable walled enclave nor an indeterminate bundle of sticks, but rather a leaky bucket of gambles. (15)
Finally, conceptually separating risk production from harm manifestation sheds important light on the law's arsenal of responses to property conflicts. Tort law addresses such conflicts by pairing together specific instances of realized harms and particular risky actions. Regulation, in contrast, can bring legal pressure to bear on either risks or harms in isolation. While a significant literature exists on the choice between tort liability and regulation, the connections between these ideas and property theory remain underexplored. Recognizing that property holdings may be improperly scaled for particular risk-producing activities suggests the possibility of rescaling those holdings to better contain the outcomes of those activities. Property can be rescaled on a wholesale basis, through a reconfiguration of the property interests themselves, or selectively, through customized contract provisions that add or subtract responsibility for particular inputs or outcomes. (16)
This Article proceeds in three Parts. Part I works through a reconfigured taxonomy of property entitlements in the nuisance context that takes into account both halves of the tort. I explain how this reformulation advances and refines our understanding of property theory and reconciles it with tort theory. Part II turns to the significance of property boundaries. While Part I focuses on how property and tort fit together in a unified framework, Part II examines how property uniquely manages risk by bundling inputs and outcomes within physical or conceptual boundaries. My approach recasts torts as mismatches between the scale of property entitlements and that of various risk-producing activities. Part III explores how tort law and other legal alternatives might operate to address shortfalls in property scale by putting legal pressure on risk, shifting the allocation of liability for harm, or addressing both risk and harm simultaneously through contractual or across-the-board changes in the contours of particular property holdings.
I. HALF-TORTS IN THE CATHEDRAL
"Only rarely are Property and Torts approached from a unified perspective." (17) So begins Calabresi and Melamed's enormously influential 1972 article. Perhaps no article has done more to unify thinking about property and torts. Yet, interestingly, the vision of property entitlements it developed did little to incorporate tort theory's distinction between risk production and the manifestation of harm. Adding this element to the analysis yields a clearer and more precisely specified understanding of how entitlements work--one that better situates property and tort within a single conceptual framework. (18)
A. Splitting the Nuisance
Consider the standard nuisance example-a factory that expels pollutants to the detriment of a neighboring homeowner. (19) This situation is usually understood to require a decision as to which of the two parties holds a unified legal right ("the entitlement") as well as a decision about how that entitlement will be protected. (20) This way of describing the problem falters, however, when we divide the factory's act of pollution into two parts: the production of fumes on the one hand, and the dirtying of lungs or linens on the other. When the factory holds what has been described as "the entitlement," it does not, in fact, hold the right to carry out the completed tort of harming the neighbor--nor even, as Smith has emphasized, the right to see that the fumes make their way over the neighbor's property line. (21) Indeed, it is not even accurate to say that the factory holds an entitlement "to pollute," if "pollution" is understood in terms of negative end results for the neighbor. Rather, the factory holds only the privilege of engaging in the activity that produces fumes. (22)
The two parts of a pollution event--fume production on one side and manifestations like grime and wheezing on the other--correspond to the division between risk and harm that runs through much of torts scholarship. To be sure, most torts scholarship highlighting the risk/harm dichotomy focuses on highly stochastic events such as inattentive driving, in which random factors mediate between the risky action and the harmful outcome. (23) But even if we assume that luck plays no role in a given nuisance dispute, self-help can intervene between the production of fumes and the harm to the neighbor. (24) The neighbor in the story might mitigate the harm by rearranging her activities on her property, drying her clothes indoors, closing her windows and installing air purifiers, or even (to use Smith's example) installing giant fans to counteract the fumes. (25) These measures are not costless, but the possibility that they might be undertaken to avert the harm of pollution establishes that the factory's entitlement runs only to the risk-creating conduct and not to any particular harmful result.
The approach pioneered by Calabresi and Melamed and followed by countless scholars can be encapsulated in a two-by-two grid that breaks down the possible resolutions of a two-party land use conflict along two dimensions: (1) which party holds the entitlement; and (2) whether the entitlement is protected by a property rule or a liability rule. (26) My reformulation asks two somewhat different questions: (1) whether risk production (of a specified type) is permitted or forbidden; and (2) who bears any costs that result from society's answer to the first question. Using the standard example in which the risk production in question is the emission of pollutants into the air, we can construct Figure 1, a reformulation of C&M's four-rule schema.
The two rows in Figure 1 contain two different risk input rules: in the top row, emissions are permitted, and in the bottom row, emissions are forbidden. (27) The phrase "emissions permitted" as used here denotes only the privilege to put the pollutants into the air and not the right to make the pollutants enter the homeowner's lungs or laundry. Only one risky input appears in this simple example, and it is carried out by only one party--the factory--rather than reciprocally by both parties. (28) The two columns represent two different rules for allocating the costs of any resulting harm: in the left column, the factory bears the costs, and in the right column, the homeowner bears the costs. Following Coase, harm can result from a risk production rule that denies the factory the privilege of emitting, just as surely as it can result from a risk input rule that allows the factory to emit pollutants. (29)
Working through this reformulated two-by-two grid produces a sense of deja vu; the four rules produced by this new pair of questions look at first glance to be nearly identical to those that have long appeared in the dominant C&M model. (30) There is a cell in which the factory can emit but must pay for any damage that results; (31) another in which it can emit without paying; (32) a third in which it must stop emitting at its own expense; (33) and a fourth in which it must stop emitting, but the stopping costs are borne by the homeowner. (34) Yet, on closer examination, Figure 1's reformulation introduces at least four important refinements.
First, the reformulation highlights a key difference between the harms featured in Figure 1's top row (in which the risk-producing activity is permitted) and those in the bottom row (in which it is forbidden). The latter are the direct product of state coercion, but the former are not and can therefore be influenced by stochastic factors and self-help. (35) Second, and closely related, entitlements granted to risk producers extend, at most, to risky conduct and not to harmful consequences. Third, Figure 1 makes explicit a fact obscured by C&M's reference to a generic "entitlement": in addressing conflicts, society necessarily selects particular risky inputs (here, emissions) for scrutiny, while neglecting other inputs (such as living in a house near a factory) that, on a Coasean analysis, would be equally causal. Fourth, Figure 1 focuses exclusively on specifying the content of the underlying entitlement and consciously defers two further questions that were conflated in the C&M framework: how transfers among entitlement regimes can occur; and what remedies are available for violating an entitlement regime's terms. I take up these four features of Figure 1'S reformulation in turn.
B. Harm, Luck, and Self-Help
Figure 1 combines two kinds of harms-those (such as the homeowner's dirty linens or wheezing lungs) that result from risk-producing activities, and those (such as the costs of shutting down or moving the factory) that result from the suppression of risk production. These two kinds of harms are treated in fundamentally different ways by the law. While the harms that come from risk production are never directly imposed on parties through the affirmative use of the state's coercive apparatus, the harms that come from the suppression of risk production may be imposed on parties by the state in just this way.
To understand this difference, it is helpful to consider Wesley Hohfeld's distinction between rights and privileges. (36) A privilege is something that a party is legally free to engage in if she can; the law will not interfere. (37) Yet, her plans may be thwarted by other private parties who undertake countermeasures, and the law will not come to her aid-she is on her own. (38) A right, however, is made of sterner stuff. Unlike a privilege, a right is backed up by the coercive force of the state. (39) Suppose Andrew has a right, rather than merely a privilege, to plant turnips in a community garden. (40) That means (among other things) that when Betty tries to block his turnip-planting endeavors, Andrew can call the police to make her stop interfering. In Hohfeld's terms, Andrew's possession of a right to plant turnips means that Betty--like everyone else in the world--has a duty not to interfere with his planting activity. (41)
To see how the risk/harm distinction that I have been emphasizing maps onto Hohfeld's right/privilege distinction, consider the following variation, in which Andrew wishes not to plant turnips but rather to spray herbicides in the community garden. Assume this spraying activity creates a risk of killing some of the vegetables planted by Betty. Andrew may be granted a privilege to engage in risk-producing activities (that is, to spray herbicides), but the law will not grant him a right to generate harmful results (that is, to kill Betty's vegetables). (42) Andrew's lack of a right to kill vegetables means that Betty has no correlative Hohfeldian duty to suffer that harm. Betty can respond to Andrew's spraying privilege by covering her vegetables with a protective tarp, using special plant food to build up her vegetables' resistance, and the like. (43) She can also benefit from lucky breaks, such as rains that rinse away the chemicals and spare her vegetables. Andrew cannot call the police to demand that the law enforce his right to bring about the demise of Betty's vegetables, because he has no such right-even if the same end result is likely to obtain in the course of the risk-producing activity that the law privileges.
Consider now the other sort of harm presented in Figure 1--that which results from stopping activities that generate risk. Assume for the moment that the prohibition on the activity can be perfectly enforced and that bargaining is unavailable (as either a legal or a practical matter) to undo the prohibition. (44) Unlike a risk production rule allowing an activity, a prohibition of this sort necessarily entails the realization of the specific harm associated with stopping that activity. This harm will be coercively imposed by state action if necessary, and, absent a bargain to undo the prohibition, no party will have any power to deflect or reduce that harm. (45) A decision remains as to who shall bear the costs of the realized harm, although it is very rare for courts to allocate liability for stopping costs to any party other than the one forced to stop the activity. (46)
Here we see an asymmetry. (47) The possibility of self-help drives a wedge, at least potentially, between the production of risk and the realization of any particular harm--even apart from any stochastic element intrinsic to the risky activity. No such wedge exists between the law's coercive mandate to cease a particular activity and the costs associated with that stoppage, at least if we assume full enforcement. (48) To that extent, a risk production rule disallowing an activity is more coercive in producing harm than is a risk production rule allowing an activity. This observation does not imply that allowing a risky activity to proceed is always a good idea. The coercively imposed costs associated with a ban on an activity may be unambiguously smaller in some cases than the costs that will result if the activity goes forward. Nonetheless, it is important to note that private parties can legally reduce costs when an activity is allowed but cannot do so (ex post) when the activity is forbidden. (49)
Two points made above can be generalized to other tort settings. First, no party permitted to undertake a risky activity ever holds a right to bring about a harmful result (recognizing that "harmful result" is a socially defined term). Rather, parties hold entitlements to engage in otherwise beneficial activities that produce various risks of harm. If Eleanor is driving carefully and Foster leaps into her car's path too late for her to stop, Eleanor does not thereby gain a right to crush Foster with her car. What Eleanor has after Foster leaps is the same thing she had before--an entitlement to engage in the risk-producing activity (careful driving). (50) It is true that this activity may result in harm to Foster in a given instance. But the darting Foster remains free to leap back out of Eleanor's way or to benefit from some intervening event that fortuitously sweeps him out of Eleanor's path. Eleanor has no entitlement to make Foster hold still so she can run him over.
Second, because nobody has a right to bring about a harmful result (that is, everyone has "no-right" in Hohfeldian terms to produce such an outcome (51)), every potential victim has the privilege of engaging in self-help to minimize or avoid harm--at least within the bounds of other legal duties. No analogous privilege to reduce harm is available when an activity has been banned. A ban on a risky input imposes a duty to cease the activity and bestows a correlative right on the would-be victim, who can invoke state coercion to enforce the other party's duty. Thus the asymmetry: Foster can leap out of the way to avoid harm from Eleanor's driving, but if Eleanor's driving were prohibited, she could not "leap out of the way" of the costs that the ban would impose on her. (52) This asymmetry has nothing to do with the existence or location of property lines; instead, it stems from the structure of the entitlements themselves. (53)
One must be careful, however, not to overstate the practical import of this asymmetry. (54) The alternatives that parties have to reduce costs arising from permitted risk production are always constrained-both by empirical facts about the situation and by the surrounding legal framework. These constraints force the responsible party to bear either unmitigated harm or the expense associated with the cheapest legal alternative for mitigating that harm. (55) Therefore, the greater freedom that parties have to reduce costs when an activity is allowed, as opposed to when it is prohibited, is only relative. In either case, the law's overall framework places some cost-reducing alternatives off-limits, leaving parties to choose among the remaining legal alternatives. (56)
The conceptual difference between banning an activity and assigning liability for its harms bears practical fruit most clearly when risk producers have better information about alternatives than do lawmakers. Permitting an activity to proceed may indeed be functionally equivalent to imposing a cost on the liable party in the amount of the cheapest legal harm-reducing alternative available to that party, but the content of that cheapest legal alternative may well be unknown to legislators. The choice between the top row and the bottom row of Figure 1, then, may depend at least in part on the comprehensiveness of the information possessed by the government and by private parties, respectively, about alternative courses of action. (57)
C. High Probabilities and Forbidden Ends
The distinction emphasized in the previous Section can be intuitively captured by the idea that there is some "daylight" between risk and harm, whereas no such gap exists between a prohibition and its costs. (58) I have suggested that both human agency and luck can operate within the risk/harm gap. As long as the gap is appreciable, the switch from a morally grating locution like "an entitlement to pollute" to the less inflammatory "an entitlement to emit" adds useful precision. But how does Figure 1's reformulation apply to scenarios in which it is hard or impossible to perceive any space between the risk and the harm? I consider two types of situations: first, activities directed at permissible ends that nonetheless generate harm with a probability of 1; and second, activities that are directed at impermissible ends or that are the subject of categorical prohibitions because they are deemed inherently harmful.
1. When Harm Is Certain
Suppose it is an absolute certainty that a factory's emissions will cause harm. There are two senses in which this might be true. First, perhaps there is absolutely nothing that can be done to mitigate the emissions-related harm and no chance that the harm will be intercepted or buffered by luck. Second, and much more likely, perhaps various measures can be taken to avoid or reduce the most serious consequences of emissions, but those measures are themselves costly. In the latter case, some harm will inevitably result, but its nature and magnitude will depend on the choices made by the parties.
In these instances, is it useful to distinguish between the risk-producing activity and the harmful outcome? I maintain that it is--but only if the distinction is properly understood as a conceptual delineation of legal entitlements and not as a normative defense of any particular legal arrangement. In other words, the point of drawing the distinction is not to disingenuously dismiss the interests of the victims of a given activity--"let them self-help!"--but rather to highlight the places where human agency and the potential to aggregate dispersed information can operate to alter the total costs associated with a given conflict. Unless we are certain that a particular harmful result will occur with a probability approaching 1, the potential for differential access to information about, and incentives to undertake, cost reductions may play some role in deciding between approaches that address risk directly through a prohibition and those that operate indirectly through the allocation of liability for costs. (59)
In the (presumably very rare) instances in which there is complete certainty that harm of a particular sort will result from a given activity and nothing at all can be done to influence the severity or probability of that harm, separating risk from harm would offer no analytic advantage in assessing incentives or information differentials. But even in such instances, it is useful to employ a formulation that does not present the entitlement at stake as one to gratuitously generate harm, but rather as an entitlement to engage in an activity directed at a permissible end that throws off costs as a side effect. (60)
2. Bad Acts and Categorical Prohibitions
The examples used above to illustrate the risk/harm gap involved unintentional torts and the category of nuisance. (61) But what about torts like battery or trespass? Some activities are intentionally directed at ends that society deems impermissible. (62) Others are, for various reasons, viewed as harmful in themselves and therefore subject to categorical prohibitions. Can such activities be accommodated within Figure 1's reformulation?
Certainly, we can observe that such intrinsically harmful or categorically prohibited acts (once they have been so classified by society) always occupy Cell C, where the activity is prohibited and the costs of the prohibition fall on the would-be actor. At another level, we might say that activities that society considers intrinsically harmful or categorically prohibited do not meaningfully engage Figure 1's grid because (by virtue of societal definition) they do not present a (mere) risk of harm, but rather a harm full stop. (63) Put another way, the force of societal judgments about certain activities seems to rebut an implicit premise of the grid-malting exercise--that all of the regimes in the taxonomy are viable alternatives. This line of reasoning raises the question of why society has made such judgments. Some activities that are categorically prohibited (such as most kinds of boundary crossings by persons) pose special threats to the pairing of inputs and outcomes that is at the heart of the institution of property.
For present purposes, it does not matter whether we understand society to have lodged the great mass of "bad intentioned" or otherwise categorically prohibited acts in Cell C, or whether we instead understand those prohibitions as the superstructure against which more fine-grained analyses of risk/harm mismatches play out. Society's classification of acts as categorically prohibited may be subject to change over time, and including them in Figure 1 underscores that fact. But Figure 1's taxonomy is most interestingly engaged when we consider what are "hard cases" by society's own normative lights--instances in which a party pursuing an end that society deems to be legitimate nonetheless generates the risk of an outcome that society deems to be harmful.
D. Which Activities Produce Risk?
To this point, I have been speaking as if there is some self-evident category of "risk-producing activities" that law can choose to allow or (coercively) disallow. In the factory-homeowner example, I have posited a single such activity--the emission of fumes. Figure 1 is structured around the choices suggested by this risk-producing activity. But before we ever reach a grid like Figure 1, society has implicitly made some judgments that constrain the alternatives we encounter there. This was equally true of the approach introduced by C&M, but the way in which they structured and labeled their framework obscured the role of these background societal judgments. The law must decide which factors, of the many that combine to produce harm, will be singled out as risk-producing and which factors will instead be understood as benign background conditions against which risky activities play out.
It is intuitive that the activity of emitting effluents (a means, let us suppose, to the permissible end of widget-making) creates risk. Given that intuition, society must decide whether to allow or ban the activity, and it must further decide how to allocate the costs resulting from that decision. In other words, by defining "emitting" as the risk-producing activity in the story, we have placed it on the chopping block as a potential subject of government coercion. Significantly, the conflicting activity, residing in a home nearby, is not placed on the chopping block in a reciprocal manner--neither in Figure a nor in the original C&M framework.
That distinction might be defended on various normative grounds. (64) Nonetheless, a Coasean analysis would suggest that the residential use is just as much to blame for the land use conflict as is the industrial use. (65) Indeed, the residential use's existence and location is exactly what causes us to pick out the factory's activity as a risk-producing one. (66) To take account of this, we might construct an alternative version of Figure 1 in which the risky input is not "emitting" but rather "residing within 500 yards of an emitting factory." (67) That activity might be permitted, with the cost of any resulting harm either shifted to the factory or left to fall on the resident, or it might be prohibited. If it were prohibited, the government could enforce the prohibition by coercively moving the household somewhere else while placing liability for the moving costs on one party or the other.
Without such alternatives, C&M's framework subtly diverges from a Coasean notion of reciprocity. (68) We can come up with reasons-practical, cognitive, or even moral--to explain why the house-moving alternatives are not part of the standard panoply of societal choices. (69) But it is nonetheless the case that an implicit judgment has been made about which features of the situation are deemed responsible for the risk (70) and are thus viewed as appropriate potential targets of government coercion. Such a selection inheres in every matrix that sets out legal alternatives for resolving a conflict. C&M's framework implicitly accepted the societal assumption that emissions were the causal agent in the factory-homeowner conflict; Figure 1 makes that assumption explicit.
By explicitly identifying a risk-producing activity, Figure 1 makes two advances. First, and more modestly, it shows the extent to which entitlement theory is interstitial--a way of exploring the alternatives left open after law has undertaken the normative groundwork of identifying the activities it will treat as causal. Second, and more ambitiously, explicitly identifying a risky input as the subject of societal scrutiny encourages creative thinking about other factors that might be viewed as equally causal in a given scenario.
E. Reconciling New and Old
What would the reformulation that I have suggested mean for the original C&M framework and the large body of interesting and important work that has been constructed upon that edifice? The original framework was not wrong, only overstuffed. It attempted to pack into each cell of the four-rule schema answers to three inquiries. First, what is the content of the (underlying) entitlement? (71) Second, how can the entitlement be (legally) transferred? And third, what remedies are available for violations of these approved transfer protocols ? Of course, pieces of this same critique, variously stated, have appeared in the literature for decades. (72) Yet the way in which Figure 1 reformulates the answer to the first question sheds new light on the remaining two inquiries.
1. Entitlement Content
Calabresi and Melamed and their successors have generally characterized "the entitlement" as something unitary, like a football--exclusively held at any given time by one party or the other, and capable of being passed back and forth upon fulfillment of specified conditions, such as the payment of money. (73) Refining what each party holds under different risk production and cost allocation rules changes the picture. As I show, Cells A, B, C, and D from Figure 1 can be thought of as different entitlement packages with which the law might endow pairs of parties. (74)
Cells B and C most closely resemble unitary, entitlement-as-football regimes, in that the same party enjoys both a beneficial risk input rule and a beneficial cost allocation rule. In Cell B, the factory holds the privilege to emit, and the homeowner has in Hohfeldian terms "no-right" to stop the emissions. (75) The costs of any resulting harm are left to fall on the homeowner, who may choose to buffer the effects through self-help. The homeowner has no right to recover damages from the factory, and, accordingly, the factory has no duty to pay (in other words, it has the privilege of not paying). In Cell C, the factory has a duty not to emit, and the homeowner has a right to engage the...
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