4. The Limits of ‘In-Kind’ Compensation

Coordination problems are only one type of bargaining problem. Other types exist, and governments sometimes impose regulations to address them.43 The most prominent sort of problem in property theory is the problem of open-access resources, which potentially gives rise to ‘tragedy of the commons’ situations.44 Hence, a form of ‘average reciprocity of advantage’ argument might seem a promising choice to provide the basic elements for a justification of property systems at a very general level.45 However, the regulations which address these other types of problem do not necessarily generate a similar reciprocity of advantage, and in fact commonly will not. The conditions that we have observed produce an average reciprocity of advantage for the regulated parties are sufficiently stringent—benefits provided in the same currency as the costs of the regulation, in an amount greater than the loss, with the result that objecting to the regulation would ordinarily be irrational—that the presence of genuine reciprocity of this sort is likely to be infrequent.

some coal be left in place as a barrier, but rather disapproval of the procedures used to determine the specific amount of coal that would have to be left in place. The coal company’s counsel stated: ‘The complaint of plaintiff in error is made solely on the ground that the manner and method of fixing the width of a barrier pillar between adjoining coal properties described in the act is unconstitutional, and if allowed to stand, will be productive of much injustice and consequent litigation.’ Plymouth Coal Co. v. Pennsylvania 1914.

43I use the term ‘bargaining problem’ to refer generically to situations in which private negotiation cannot be relied upon to produce the optimal outcome. Such problems can arise for many reasons, including lack of perfect information or the presence of significant transaction costs. Moreover, disagreement may exist about what outcomes are ‘optimal’. Sorting through those large issues is unnecessary for present purposes. The term ‘bargaining problem’ here is merely a loose and convenient shorthand.

44The problem addressed in Plymouth Coal bears some obvious similarities to the classic ‘tragedy of the commons’ scenario, but the two are not identical. Obviously, if the resource in question is just coal in general, large amounts of coal extraction will continue, even over the long run, with or without the regulation. Even if we define the relevant resource more narrowly, as the amount of coal that potentially could be mined if the regulation exists but which will not be available absent the regulation if both mining companies pursue the same strategy (either risky or risk avoiding), the coal problem still differs, because one possible outcome is under-extraction of the resource (if both parties are risk averse) rather than overuse. In such cases, a subsequent reallocation of property rights, so that both parcels were owned by the same party, would permit safe extraction of the remaining excess coal. By contrast, in ordinary common-pool open-access problems, once the inefficient rush to extract has run its course, there is no way to recover any of the lost potential resources imposed by the inefficiency. Once oil has been brought up from the ground inefficiently quickly, producing excessive storage costs and damaging the geological structure of the oilfield in a way that limits the total amount of oil available for extraction, there is no way to recapture those losses by reallocating rights to the oilfield. One cannot simply pump the oil back into the ground. The famous boom and bust of the Lucas oilfield at Spindletop in the early 20th century is a classic example of this phenomenon. See e.g. Craft 1995, 701.

45Joseph Raz 1990, 6–11, offers a coordination-based theory of law’s authority in general. Raz’s focus is much broader than the topic of our discussion, which assumes that law can be authoritative and focuses instead on issues concerning the normative adequacy of particular sorts of laws. Although there may be interesting interactions between coordination-based accounts of the authority of all law and coordination-based justifications for specific laws, space does not permit exploring that possibility here.

An example may help make this point clear. Some cities in cold-weather climates have laws requiring that building owners shovel the sidewalks in front of their buildings after a snowfall.46 Although building owners do not own those sidewalks, the regulation imposes upon them an affirmative duty to keep those sidewalks clear of snow. The regulation’s benefit to society is obvious. Sidewalks laden with snow are at best inconvenient to pedestrians, and at worst dangerous. Because sidewalks are linear, travelling from a point in front of one building to a point in front of another building requires travelling along the sidewalk in front of each intervening building. Thus, snow in front of one building harms not only those people who walk to or from that particular building, but also anyone who wishes to walk between locations located on opposite sides of that building.47 For sidewalks on a given block to perform their function, every segment of the sidewalk needs to be clear.

This is a garden-variety assembly problem, with the accompanying customary concerns about holdouts. In the eminent domain context, the solution to the possibility that holdouts may impede completion of public projects requiring the assembly of large numbers of parcels is to permit the government to compel owners to sell the necessary parcels. In the sidewalk context, the solution is to require owners to keep the sidewalks free from snow.

At first glance, this scenario might seem similar to the Plymouth Coal scenario: because the passableness of the sidewalk in total depends upon the passableness of each of the sidewalk’s segments, the payoff to any one building owner of shovelling snow depends upon the actions of other building owners. Moreover, considered from one perspective, the particular cost imposed upon each owner, namely a duty to keep a segment of sidewalk free of snow, receives compensation of exactly the same sort—other owners’ having a duty to keep adjoining segments free of snow.

There is, however, one pivotal difference between the two. Coal mining companies necessarily care about extracting more coal. That is the very fact that creates the problem which the Plymouth Coal regulation addresses, namely excessive extraction of coal in the short run. The payment provided by average reciprocity in Plymouth Coal then is not only in the same currency—extracted coal—as the burden imposed by the regulation, but is also a payment that we can be certain that the recipient cares to receive. In the sidewalk case, by contrast, although the compensation could once again be thought of as in the same currency as the cost—clean stretches of sidewalk—there is no certainty that the burdened party

46Larissa Katz has written about these laws in some detail (Katz 2012). Arthur Ripstein (2009) also touches upon them in the course of offering a Kantian analysis of the state’s authority to establish public roads and enforce traffic laws. Ripstein’s account explicitly foregoes any assumptions of a balance between individual burdens and benefits, appealing instead to ‘the systematic requirements of individual freedom, which depend on distinctively public spaces’. Ripstein 2009, 233.

47The inconveniences include getting one’s pants dirty, ruining dress shoes, soaking one’s socks, and not being able to walk or wheel across the section that is covered in snow. Note that these inconveniences are largely binary—pants that are dirty have to be laundered, no matter how dirty they are, damaged dress shoes either must be repaired or discarded, even if only slightly damaged, and a patch of snow that is too deep to travel through is an insuperable obstacle whether it is 10 feet across or 100 (just as a deep unbridged river stops all land travel, no matter how wide the river is).

There is no avoiding this problem by appealing to future generations’ ability to make sacrifices themselves to benefit still later generations. Although such future sacrifices could plausibly forestall any claims of unjust enrichment by our descendants, they do not in fact provide compensation to the present.49 Indeed, only those people who care much about the fate of later generations in this specific regard would even find those future sacrifices appealing, and those people likely would already have voluntarily made the sort of sacrifices which the regulation demands. The regulation exists precisely because not everyone is in that category, and those who are not but feel the regulation’s burden receive no benefit from the possibility of other people’s making sacrifices to promote a result which is a matter of complete indifference to the landowner who must today bear the burden of the government’s action.50

Whenever the government limits private owners’ property rights, either through regulation or exercises of eminent domain, this lack of true reciprocal benefit is likely to be common, and perhaps even typical. Given the diversity of human interests and circumstances, any assumption that general restrictions on property will reliably provide burdened property owners with specific benefits that equal or exceed their specific losses is heroically optimistic, except in unusual circumstances where the regulation in question overcomes coordination problems, as in Plymouth Coal.

This problem is especially obvious in the context of physical takings. Owners of land that has been taken for some public project may have no interest at all in the fruits of that project—for example, a jazz devotee whose land is taken to build an opera house, or a childless couple whose land is taken to build a school. This is particularly true when the taken property is a residence and the displaced owners end up having to move far away from the neighbourhood that benefits from the project.51 However, it is equally applicable in the context of regulations. Thus, for example, in Penn Central the US Supreme Court noted that ‘the property owner in [Euclid v Ambler] who wished to use its property for industrial purposes was affected far more severely by the [zoning] ordinance [limiting industrial uses]

49An additional problem is the lack of any guarantee that the future generations will themselves choose to accept a parallel burden with respect to subsequent generations. There is inherently no way for an earlier generation to determine what obligations future generations will voluntarily choose to accept.

50If there is any doubt about that, considering a closely analogous situation may make the difficulty here obvious. If we focus only on people who are all alive at some specific time, no one would contend that if A is burdened to provide some benefit to B, that loss receives compensation if B is burdened to provide a benefit to C. A’s loss obviously has not diminished merely because B too has suffered a loss. Now note that the same holds true if we allow for the possibility that A, B, and C exist at different times.

51Krier and Serkin 2004, 868–9 suggest one way that this might happen: if the public project increases property values to such an extent that the owner of the taken property, who received compensation based on the pre-project market value of that property, no longer can afford the postproject cost of housing in that neighbourhood, then that owner will be compelled to relocate to a less expensive neighbourhood that may be too far away from the project to enjoy its benefits. However, an effect on market prices is not necessary for this result to occur. If vacancies in the neighbourhood are few, and the taken property was one of the few inexpensive properties in that neighbourhood, then the unfortunate owner may simply have no available affordable options to buy or rent.