The anticommons and public choice, a reply to Tim Lee

Tim Lee wonders if there is a consistent way to reconcile his libertarian principles, especially his opposition to Kelo, with a recognition that easements are often needed to provide telecom and other services, and ends up advocating government ownership of the telecom infrastructure. Let’s see if I can extricate Tim from this self-defeating libertarian mess.

There is such a thing as property rights that are too strong. When nobody has veto power, it results in a tragedy of the commons; when too many people have veto power, there is a tragedy of the anticommons, to use Michael Heller’s phrase. We have property rights to deal with the former, and limits to property rights to deal with the latter. It would be nice to avoid both tragedies, and there is some level of property rights that strikes the efficient balance between them.

Contrary to what some natural rights libertarians argue, the efficient level of property rights is not deducible from first principles. It will depend on the kind of property, the uses to which the property is put, the technologies available, and so on. In the Nordic countries, for instance, everyone has the right to roam across uncultivated land in the countryside, regardless of who owns it. Is this a bad policy? I haven’t seen a thorough analysis, but it strikes me as at least plausibly efficient. If the freedom to roam is more valued than the right to exclude, then this rule simply economizes on the transaction costs associated with getting permission from landowners to use their land for hiking and cross-country skiing.

With the idea of efficient property rights in mind, how do we deal with the holdout problem that plagues real estate development, utilities, and other projects? We want projects to succeed if their value is greater than the true value of property to the sellers, but sellers have the individual incentive to act strategically and overstate the true value of their property. This strategic behavior could derail the whole project, even if the project is efficiency-enhancing. One way to cut through this strategic behavior is to use eminent domain.

If we could be certain that eminent domain would only used when it was efficiency-enhancing, and that adequate compensation would be made to the expropriated, I would have no problem with it. I would regard it as just another limitation on property rights, like the freedom to roam in Nordic countries, that makes us all better off. But as I think most libertarians would agree, the real problem is public choice; due to corruption or incompetence or both, governments may often resort to eminent domain as a favor to special interests even when it is not efficiency-enhancing, and it may fail to adequately compensate the expropriated, reducing the incentive to own and invest in property. Consequently, I join other libertarians in favoring strong limits on eminent domain.

Tim bases his argument on the “public use” clause of the Fifth Amendment. I worry that he focuses on the rule at the expense of what we want the rule to accomplish. From my perspective, in a first-best sense, who cares whether the taking is for a public use? What matters is that the system of property rights helps us to flourish. It’s only in a second-best sense, with the realization that the government must be constrained, that we should endorse the public use clause.

The public use clause may improve outcomes, but it really only correlates with what we actually want. A taking for private use could be efficient, because private projects face the same holdout problems that public projects face; a taking for public use could be inefficient, as when the government seizes property to build a large facility for prosecuting the war on drugs. If we judge that there is more scope for abuse in private takings, then the public use clause makes sense as a rule. But there may be other rules that make even more sense. For instance, a “eminent domain for public use plus easements for regulated utilities” rule might be better. I think it is completely consistent with libertarian principles to search for the rule that helps us to flourish the most, even if that rule ends up being a little messy. Personally, I would prefer something like “no eminent domain, not even public use, but some easements for particular stated purposes.”

Even if Tim wants to avoid giving ground on the public use clause, he has a lot of options before he gives the state a monopoly on telecommunications infrastructure. For instance, he can say no to involuntary easements entirely. If this were the rule, I think community associations would gain the power to act as intermediaries between homeowners and utilities, negotiating a deal without all the strategic messiness that occurs when individual homeowners negotiate. In effect, the community association would act as a hyper-local government, albeit one subject to contract and property law.

Another idea that I’ve heard economists kick around is self-assessed property taxes. Every year, property owners would be required to file with the local government the amount at which they value their property. They pay a tax based on this amount. If anyone is willing to buy the property for more than this amount, the owners must sell or pay the difference between the offer and their self-assessment. Such a system would reduce the holdout problem and ensure fair compensation for property owners.

The bottom line is that we should search for rules that enable us to flourish. We need to be aware of the problems associated with property rights that are too strong as well as too weak, and we should be extremely skeptical of government power. Giving the state a monopoly over the telecom infrastructure results in the same property rights arrangements with more power in the hands of the state. I think we can do better than that.