The Economic Approach to Law, Second Edition by Thomas J. Miceli

Author:Thomas J. Miceli [Miceli, Thomas J.]
Language: eng
Format: mobi
Publisher: Stanford University Press
Published: 2008-08-04T04:00:00+00:00

1 Involuntary Transfers and Restrictions on Transfers Between Private Parties

This section examines coercive transfers, or restrictions on transfers, between private parties. The first two topics—adverse possession and mistaken improvement—concern the occupation or development of someone else’s property without their permission. The questions we address in these cases are: What is the appropriate legal remedy? and, Does it matter whether the encroacher acted intentionally or innocently?

We then turn to inheritance rules. Generally, property owners are free to bequeath their property as they see fit, a freedom consistent with the efficiency of voluntary exchange. There are, however, some restrictions on that freedom. We examine two: one that was historically important (primogeniture), and one that continues to be valid (the rule against perpetuities).

1.1 Adverse Possession

Adverse possession is a curious doctrine that on its face seems to legitimize the theft of land. Under the doctrine, the occupier of a piece of land who is not the true owner acquires title after a statutorily defined number of years if the occupation is hostile to the owner’s interests, open, and continuous. Further, the displaced owner cannot seek to recover the land, or even compensation, if he has failed to act within the statutory period. Thus, although adverse possession is an involuntary transfer of land, it is not a liability rule because of the absence of a right to compensation. Rather, it is a statute of limitation on the owner’s right to enforce a property rule.

Adverse possession represents a particularly severe challenge to the economic theory of law since it seems to undermine the very basis of market exchange—namely, secure property rights. Nevertheless, economists have formulated theories to explain the doctrine as a response to various forms of market failure.1

One common theory is that it deters owners from leaving their land idle. Economically speaking, this is not a good reason because irreversibilities in land development often make it optimal to wait until a future date to develop. Another reason is the standard argument for statutes of limitations: as time passes, memories fade and evidence becomes stale, making litigation over disputed title costlier.2 This argument is more plausible, but still it seems a frail reason for weakening a landowner’s rights, especially given modern methods of record keeping.

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