Richard A. Epstein*
The selection of the title for my Coase lecture was in part an
act of trepidation and in part an act of literary license, which
fits in with one important side of Ronald Coase's own work: its
distinctive literary excellence. In any event this quarter I have
taught property based courses in two subjects, property itself and
a seminar on the Federal Communications Commission, a subject on
which Coase wrote with such perspicacity nearly 40 years ago (when
he was younger than I am today).(2) So the metaphor of the fence
came naturally to me as the sign of property rights. But I put the
point in question form because I want to get across the uneasiness
that one has about fences, and by implication about boundaries.
And it turns out that I am not alone in that pursuit. Susan Gzech
does more than teach immigration law-a subject in which boundaries
are of no little importance- but she also memorized poems in third
grade. So she reminded me (with verse recited from memory) that
Robert Frost's poem, Mending Wall, achieved its greatness precisely
because its long dialogue showed a deep ambiguity about fences,
and perhaps about the boundaries that these were designed to protect.
That ambiguity is captured in the passage which supplies the title
for this section:
There where it is we do not need the wall:
He is all pine and I am apple orchard.
My apple trees will never get across
And eat the cones under his pines, I tell him.
He only says, 'Good fences make good neighbors.'
And note only this irony: the author says that we do not need fences
(a cost) because there are no boundary crossings that they need
to deter, given the fixed positions of pines and apple trees. He
does not say that boundaries require fences under other circumstances;
much less does he say that boundaries are not important as between
neighbors. Yet I shall not dwell at length on this passage, let
alone this poem, for we have miles to go before I earn my keep.
The poet is often thought to be not the precursor, but the antagonist
to the law and economics scholar, in which capacity I come to this
speech today, but I think that the message that Robert Frost has
offered us is a good one: good fences is not necessarily the right
way to create good neighbors, nor even to demarcate the boundary
lines that exist between neighbors. But by the same token, we should
not want to say that bad fences make good neighbors, or indicate
that boundaries are themselves unimportant to the way individuals
structure their relationships with each other. Is it just as the
poet points out that it is costly to build the wall? Quite the opposite.
The best way to understand the boundary is to endow it with a certain
presumptive validity, and then to ask the set of circumstances in
which those boundary conditions could be relaxed to the mutual advantages
of the parties along both sides of the line. Even people who do
not like fences often like the privacy that they can foster.
One simple way in which to make this basic point is to ask what
the world would be like if we did not have boundaries along which
we could build fences. At this point we would have a world that
was committed to allowing individuals to have some interest in all
land, or perhaps no individual to have any interest in any land.
But once these individuals lack any separate property of their own,
then they will have to develop some governance mechanism to structure
the way in which they interact one with the other in the never-ending
commons, not an easy task to do. The preferences for certain kinds
of behaviors and hence certain kinds of rules may have a certain
grim level of predictability across individuals. But with the increasing
rise of diversity in tastes and temperament, we can be sure that
a continuous ongoing deliberation about the nature of the common
good is sure to get on everyone's nerves, and to place an enormous
stress on the collective decision procedures that have to be invoked
to manage the common resources on which everyone depends for their
sustenance. A little community, a little participation might be
a good thing; and the same is true with a little bit of community
property. But a lot of a good thing turns out to be a bad thing,
and the simple and most profound influence that drives us in the
direction of private property is the sense that we would prefer
to have more neighbors and fewer partners in this world, and that
only by drawing boundaries and creating separate spaces is it possible
to do this.
All of this does not mean that we have put deliberation and common
property to one side. The use of common areas in condominiums and
apartment houses shows that the equilibrium, even when privately
generated, does not make all space private. Rather the hope is that,
with the separation of individuals into smaller groups we can introduce
a greater measure of agreement into the deliberations that remain:
it is easier for each family or group to make decisions on its side
of the boundary, then to have common property for them both. The
simple act of division reduces the stress on the decisionmaking
procedures internal to both groups. It is for just this simple reason:
the break down of vast collective decisions, that private property
has its origins. And its limits. Clearly separation has some gain
that can be captured by the sole entrepreneur. Thus we can see the
power of boundaries by noting that they are created by agreement
and conveyance when none existed before. The question is how we
explore the uses and these limitations of the boundaries.
Given what we have said, the creation of boundaries has both benefits,
for those who are given some degree of exclusivity, and costs for
those who are excluded. To simply compare the gains and losses in
any individual trespassory encounter is quite beside the point:
the question is whether or not we can find some systematic advantage
to a rule that treats the boundary as irrelevant in all cases: and
we cannot. The ability to plant and to plan depends on secure property
rights that allow the reaping to follow from the sowing, and the
classical writers (which cover both Blackstone and Bentham for all
their apparent differences) were correct to assume that labor would
cease on property if the return from that labor could be routinely
captured by another. I sow and you reap: I work and you collect,
are the first and most powerful indications of a mismatch between
labor and reward. The person who has internalized the labor should,
as a first approximation be allowed to internalize the gain. That
statement becomes an exaggeration with intellectual property, but
as an instinct it works most powerfully with land, where only one
person will ever be in that position to internalize the gain in
question: no matter how hard one labors you cannot "copy"
the crops. So the boundary has a powerful initial validity. But
what kinds of complications does the boundary introduce.
To see the way in which the simplest model works, let us start
by focusing our attention only on land, which is assumed to be owned
indefinitely and ask about the potential conflicts between neighbors
and how these might be resolved. Here I can think of at least four
illustrations of situations where the limited relaxation of the
boundary works to the benefit of both neighbors, not perfectly,
but with enough rough generality and predictability to be the basis
of a rule of law.
The first is a simple agricultural practice. In medieval times
when fields were plowed a nonproductive space at the end of the
field was needed for the plow to turn around. Simply stating the
proposition in this fashion shows the incentives created to having
long thin strips, so that the ratio of unusable to usable land can
be reduced. But that is a solution that does not depend in whole
or in part on cooperation between neighbors, and the question is
whether those neighbors can do better by agreement (or by custom)
if they deviate from a property rights regime of common property.
And it turns out that they can. By having a common area (just for
two) for turning the plow at the end of each strip of land, the
two parties can reduce the level of wasted space by 50 percent.
There is here of course a question of where the common strip would
be placed. At first blush there seems no reason not to place it
all on the land of one party and have both use it. But the distributional
consequences here would not come out quite evenly between the parties,
and the designated loser might say why have the inconvenience with
nothing to show for it. It is therefore under circumstances like
these that the tendency is to split the turning strip equally between
the two neighbors, so that each gains half of the surplus, or if
the situation does not quite permit that, one can imagine some possible
side-payment between the parties to equalize the financial burdens
from an uneven physical division.
Here never let anyone think that simple equity is at stake. To
the extent that we have a rule that divides the surplus you reduce
the possibility of unilateral defection from that common solution.
And to the extent that you have a clear point of reference-even
division at the margin-it facilities the emergence of a broad custom
that makes it possible for people to reach this solution for agricultural
reasons without having to figure out time and time again the logic
of sharing at the border that is consistent with joint maximization
of wealth. To be sure the solution will not work everywhere: fences
are needed when cattle and other animals are in issue unless the
parties think that one large meadow is better than two small ones,
which is often the case. Yet here too the poet is the equal to the
challenge, and anticipates the major findings of the law and economics
If I could put a notion in his head:
'Why do they make good neighbours? Isn't it
Where there are cows? But here there are no cows.
Before I build a wall I'd ask to know
What I was walling in or walling out.
The boundary solution for turns in open fields, moreover, has,
as so often proves the case, a direct parallel in the public law
of takings and eminent domain. Oftentimes one of the critical issues
in a farming community was the location of a road to take goods
to market. Let it be placed anywhere along the boundary line between
two neighbors and each can have access to it. Yet here the situation
is such that all other persons can have access to it as well, so
that typically the cost of construction and maintenance does not
fall on the original landowners. But a rule that says that they
contribute the land evenly, without compensation, leaves them the
net winners when the value of the retained lands is increased by
greater access to markets. And the principle of even division of
land contributed (or side payments in lieu of land) has the same
virtues of stabilization noted above. It reduces the incentive for
parties to push the land over to the neighbor.
In other cases the deviation from the strict borders of land exhibit
a similar logic of mutual advantage to both sides. It is evident
to all observers that the law of trespass has a harder edge (at
the boundary quality) than the law of nuisance.(3) And it is important
to understand why: with respect to those invasions that do not involve
actual entry, there is across the board (and not only in specific
agricultural settings) an opportunity by introducing a bit of gains
at the margin from a relaxation of the rules that say either all
invasions are wrong, or all noninvasions are completely permissible.
Here I first worked on these cases in the 1970s when I was trying
to see what was wrong with some of the work that I had done on the
strong boundary principle in the law of torts.(4) And I discovered
that Ronald Coase was not the first Englishman who had fastened
on the role of transactions costs in softening up situations at
The most famous illustration of this principle is the so-called
rule of "live and let live at the boundary" which says
that all individuals have to put up with a certain amount of noise
and interference with their neighbors, on condition that they do
the same with them. And the explanation for this result was put
forward in unmistakable terms by Baron Bramwell in Bamford v. Turnley(5)
when he said:
There is an obvious necessity for such a principle as I have mentioned.
It is as much for the advantage of one owner as of another for the
very nuisance the one complains of, as the result of the ordinary
use of his neighbour's land, he himself will create in the ordinary
use of his own, and the reciprocal nuisances are of a comparatively
trifling character. The convenience of such a rule may be indicated
by calling it a rule of give and take, live and let live. . . .
The public consists of all the individuals of it, and a thing is
only for the public benefit when it is productive of good to those
individuals on the balance of loss and gain to all. So that if all
the loss and all the gain were borne and received by one individual,
he on the whole would be the gainer. But whenever this is the case,-whenever
a thing is for the public benefit, properly understood,-the loss
to the individuals of the public who lose will bear compensation
out of the gains of those who gain. It is for the public benefit
there should be railways, but it would not be unless the gain of
having the railway was sufficient to compensate the loss occasioned
by the use of the land required for its site; and accordingly no
one thinks it would be right to take an individual's land without
compensation to make a railway.
It is odd perhaps to think that in some obscure nuisance decision
on the question of reciprocal injuries at the boundary we have the
following modest contributions. First, a clear and powerful statement
of methodological individualism as the way to proceed to particular
results: i.e., there is no public interest as such, only a set of
private interests of which gains and losses have to be netted in
some fashion to find out what the correct social result has to be.
(Blackstone had made the same point earlier.) Second, the importance
of the Paretian criterion of social welfare based on the improvements
of all individuals to the social system; and third, its intimate
connection to the principles of eminent domain: no compensation
is needed in cash when it is supplied in kind, but the result flips
over when (as with the railroad and the sparks) the damage by way
of invasion runs all in one direction.
What Bramwell has done has been to identify those situations between
neighbors where in fact the relaxation of the strict boundary conditions
are likely to work to mutual advantage. Once again a set of customary
practices paves the way to the legal rule, but here unlike the cases
of plowing at the boundary lines we cannot be so confident that
the parties will be able to generate the best solutions consensually
if left to their own devices. The temptation to act unreasonably;
to demand compensation, or worse to seek injunctions for trivial
losses may well prove too great to individuals who can insist that
any invasion of their space, however minute or indirect, is subject
to legal sanction. And even in the best of worlds, it costs money,
imposes impediments and encumbrances on legal title, to negotiate
thousands of transactions to reach the position that the live and
let live places us in the first place. So here we find the relaxation
of this boundary makes perfectly good sense. And for persons who
derive title from a common owner, for whom the standard rule provides
too much noise at the boundary or too little, it is possible to
create by private covenants a distinctive environment that suits
the tastes of the members of that community even if it suits none
The argument also works well in reverse with respect to the easement
of lateral support. And once again it was nineteenth century English
judges, this time, Jessel, M.R. to state the rule clearly and forcefully.(6)
If each side digs out to the boundary, the land next door will fall.
If each restrains that behavior, then both will be benefitted. The
situation becomes more complicated for it would be a mistake to
allow people to build first and claim the easement of support thereafter,
so the rule was wisely confined to land in its original state. For
the support of preexisting structures, however, an obligation was
imposed, and it was notice to the other owner with a view toward
allowing him to shore up his own support, or to negotiate for rights
of support. But the alternative rule would have bad consequences.
We never want the unilateral action by one party to transfer rights
from another. Noninvasive and surely legal; but if the development
rights on the other side are compromised, then we have here actions
that are taken for strategic advantage, actions that would not be
taken if there had been a single owner in possession of both plots
of land, for whom the boundary constraint would not be relevant
It may seem to be a long march from the law of lateral support
to the law of privacy with respect to eavesdropping and spying,
both in the public and the private context, but in fact the movement
principle that is involved here is really quite small-a nice result
if we care about a unified approach to all legal problems. Let us
assume that we had a rule that allowed all individuals to eavesdrop
at their pleasure so long as they did not trespass on the land of
another. The net effect is that both sides to keep their conversations
private would have to erect various devices to block the overhearing.
In preserving privacy, the traditional law of trespass would, of
course, offer landowners some protection. They could hide behind
their walls and or congregate in the center of their property in
order to reduce the chances that others would eavesdrop.
Yet it is possible to do better, and in so doing free up land for
more useful pursuits. If one could establish that each person values
privacy over snooping, then a social norm that blocks the overhearing
could be adopted on both sides to mutual advantage. So the question
is how can we ask whether that norm is in effect. Well here we can
once again look to consensual commons and consider the applicable
rule in restaurants or clubs. The no-overhearing rule is in strong
effect, and sanctioned informally by those who snoop. That these
rules develop in a consensual setting is a good reason to develop
them in a nonconsensual setting where it looks as though the values
attached to the various activities do not differ unduly from those
found in restaurants and clubs. And that norm has powerful enforcement
in the modern law of privacy.(7)
As with other rules, what starts out as a private rule between
parties ends up ordering relationships between the individual and
the state. The government position that snooping by electronic devices
is not wrongful because it is not trespassory is falsified by the
prior developments in the common law of privacy. Thus the long and
tortuous history of the Fourth Amendment-is electronic wiretapping
an unreasonable search and seizure-is one that receives a clear
answer. The practice is no more allowed to governments than it is
to private parties. The Supreme Court has reached that position(8)
but with too great a reliance on some undifferentiated notion of
reasonable expectations. It is all too easy to say that one is entitled
to privacy because one has the expectation of getting it. But the
focus on the subjective expectations of one party to the transaction
cannot explain or justify any legal rule. Should the result change
if the state routinely practices snooping, so that no one has any
reasonable (read, predictive) expectation that their conversations
will go undetected? It is dangerous to say the least to allow a
succession of government wrongs to ripen into a prescriptive right
of sorts. That unfortunate conclusion is avoided by stressing the
social optimality that comes by adopting a rule that extends protection
against certain forms of nontrespassory conduct, for once the optimality
of the rule is established, then its frequent violation by government
is no longer viewed as framing expectations but as violating rights.
The last of the relaxations of the boundary conditions is not so
simple because it involves the integration of the temporal and the
spatial domains, which was just hinted at in connection with the
problem of lateral support. When Ronald Coase wrote about the problem
of social cost,(9) he illustrated much of the difficulty with the
well-known case of Sturges v. Bridgman,(10) which involved a dispute
at the boundary between a physician and a druggist. The druggist
had long made up his compounds in the back of his shop without inconveniencing
anyone. But when the physician decided to construct a new examining
room near the back of his premises, the noise that had been harmlessly
dissipated now became in the standard sense of the term a nuisance
to the new neighbor who had just arrived on the scene. The question
was whether the physician could recover for his damages and obtain
an injunction against a continuation of the druggist's prior practice.
Coase used this case to illustrate that no matter which way the
original right was assigned, the imbalance could be corrected (at
least if transactions cost were zero) so that the more valuable
use could continue and the other could be modified, with appropriate
side payments between the parties, whose direction and amount depended
on the specification of the original set of right.
The case has continued to exert a fancy over legal imaginations,
and just recently Brian Simpson (who taught me property at Oxford)
has written,(11) subject to a pungent reply by Coase himself,(12)
an extended essay on the secret history of the case that reveals
the pattern of broken negotiations and disappointed maneuvers that
dogged this unhappy lawsuit to its conclusion. But our fascination
with the complexities of this situation should not allow us to deviate
from our appointed goal, which is to understand something about
the role of boundaries in disputes between neighbors.
Here the easiest way in which to organize the case is to ask the
question has the plaintiff made out a prima facie case of nuisance?
Recall that for the better peace between neighbors the presumptive
definition of a nuisance is a nontrespassory invasion that results
in visible inconvenience to the affairs of a neighbor. The question
of time does not at this level enter into the equation, and it seems
clear that the physician thus far has the whip hand in the negotiations.
But here the argument is that to every good prima facie case, we
can find some affirmative defense, and the one for this occasion
is that the plaintiff assumed the risk of the injury in question
because he came to the nuisance: here it would be easy if the plaintiff
trespassed on the defendant's land, but the entire case gains its
difficulty precisely because the plaintiff had remained a good neighbor
by not crossing over.
The usual case law on this point is in accord with the result of
this drama and it allows the plaintiff to win, and thus puts on
the defendant the obligation to purchase any needed property interest
in order to continue with his business. But the question is why
should this be the case? And in order to answer this question it
is necessary to think back to an earlier point in time in order
to decide what options were open to the physician, or his predecessor
in title, the moment the druggist started his business. If he knew
that down the road, the druggist's original activities could end
up into an easement to continue, then it is quite clear that the
plaintiff-physician is in a worse position by doing nothing than
he would be by immediately bringing a legal action to protect his
position. After all, by hypothesis if the two activities started
at the same time, he could have prevailed in his action for injunction
and damages. So the only way that he could stop the creation by
prescription of the new easement to cause damages is to sue promptly.
Thinking about that suit raises the following question: cui bono?
It hardly helps the physician to have to act early to protect his
rights. And it certainly does not help the druggist to be shut down.
Why precipitate a conflict over future legal rights when there is
no present interference, even though there is an admitted transmission
of these noises over the boundary line? So we clearly want to avoid
One way to achieve this result is to have the two parties negotiate
some sort of a stand-still agreement. But that option is costly
and holds open the possibility that the physician might demand an
amount a good deal more than his harm in order to resolve this dispute.
And the problems become still more intractable if a defendant's
activity extends noise and vibration across the unoccupied lands
of many individuals. So the law here has created a bargain of its
own. The plaintiff is told that he cannot sue today, and the defendant
is told that he cannot plead the statute of limitations tomorrow
by claiming in retrospect that the harm really started when the
defendant commenced his operations. So there is a forced exchange
of sorts between the two parties that look to make things better
off for both.
But one can only tell about the success of this engineered deal
in the fullness of time. As matters go on, the result opted for
here could prove triumphant if the actual conflict never occurs.
The physician never builds the examining room close to the party
wall, or the druggist sells out to a new developer who abandons
the older noisy practice when the neighborhood becomes more fashionable.
At this point, the postponement of the legal dispute works its magic
at both the front and the back end, and at a guess one would say
that for either or both of the reasons just mentioned, just this
outcome is likely to occur.
But in some cases the dark side of the force comes home to bear.
The conflict is postponed but not avoided altogether. Now we have
the physician who exercises the right. If we looked at this transaction
as a one period problem we might be tempted to say that the party
who is last to arrive is the one who stirs up all the conflict,
and thus creates a kind of prescriptive right for the druggist.
But once we recall the structure of the legal agreement imposed
at an earlier time, we cannot have so limited a perspective on the
problem. Now it looks as though we are in payback time. The physician
can exercise that right and the druggist has to give way. The only
help that he has is a bit of time to get his belongings in order,
and normally that will be demanded before the conflict arises. There
are some cases that deviate from this pattern, and some academic
commentary that does not take this line. But the overall sense of
the deal should be clear enough once it is set out. It is possible
to reconcile time and space, although not perhaps in exactly the
same sense that Immanual Kant would have asked for us. And once
again the analysis of the private law question gives us guidance
in public law areas: when the state shuts down the piggery to protect
nearby development, it need not compensate its owner, but can stand
in the shoes of the neighbor whom it protects.(13) The analysis is
the same as above.
This discussion of space and time affords a convenient transition
to the next of our questions: the question of boundaries in time
between different parties. This problem is one that is ordinarily
obscured to common understanding because the ownership in land and
in chattels is normally regarded to be forever, at least in the
sense that one person has no definite limitations over the period
of ownership, and can consume, sell or dispose of property just
as if he were to live forever. But there are, or at least have been,
situations where it has been thought appropriate to create temporal
boundaries between individuals, as through the creation of leases
and life estates, so that now the law has to police the boundaries
between the two successive generations of holders. The boundary
of this sort creates a different set of neighbors from those in
the spatial conflicts (with and without a temporal dimension) that
we have just had the opportunity to witness.
The key point here is that these temporal divisions contain no
element of reciprocity of the sort that governed all the cases to
date. No longer can we talk about the sharing of common spaces,
or reciprocal easements of support. Here there is one party that
is in possession of the property and the other who is entitled to
take it at some future time. By definition the party who is out
of possession can do little to harm the party who is in possession,
but the converse arrangement is surely not true. The party in possession,
however, understands the maxim that possession is ninetenth of the
law, and is in a position to do grave harm to the holder of the
next generation. Just as we can consume our seed corn, so too there
is a greater temptation to consume the seed corn of another. So
the creation of the temporal boundary gives the regrettable opportunity
for another forbidden boundary crossing. Property that has an expected
value and use past the present term or the present life can be mined,
cut, harvested so that the remainder is but a mere hulk with the
value sucked out of it. And here the common law action of waste
is offered by the state as a counterweight to the premature destruction
of assets by the present tenant in possession.
But exactly what is expected of that tenant in possession? It is
hard to give any categorical answer for so much depends on the nature
of the resource in question. It will not do for the tenant in possession
to cut down an entire forest, but if a mine is already open it is
far from clear that he should stop extraction altogether and thus
make a gift, of sorts, to the remainderman of the premises. So the
best that one can say in the abstract is that the patterns of utilization
that were followed in the earlier periods should be roughly those
which would be followed by individuals with successive interests
in the property, that is, if they acted as prudent owner of the
estate. That position is not perfect because if one could show that
the prudent owner would engage in a process of dramatic extraction
and consumption, it would be an open question as to whether that
pattern of behavior was the one which the grantor desired once the
division of interests was created: after all there was some intention
to create a transfer that provided benefits to the next generation?
And in a sense that is just the point. Now that the boundaries
are unclear and the obligations are no longer reciprocal, it is
very hard for the law to fashion an ideal set of rules that keeps
the two interests on a strict sequential course. So here the legal
norm fails, but the consensual solution rises in importance-the
inverse pattern from the live-let-live-situation where regularities
between neighbors are more easily observed: in waste cases what
we say is that the grantor of the two interests (or the one if one
is retained and the other is transferred out) can usually specify
with greater detail exactly what can be done with the property and
by whom and at what time, and if that direction is spelled out with
specificity, then we might allow the boundary crossings to take
place with relative impunity. The owner of a life estate in a grand
mansion may be able to renovate or rip it down if that is allowed
by the original deal. The life tenant of a mine may be able to speed
up production. And a tenant in possession of real estate may be
forced to surrendered the leasehold improvements at the end of the
lease, but usually for a cash settlement that compensates him for
any unrecovered investment in the original structure, be it by predetermined
formula or by a fresh appraisal when the lease terminates. So here
again the rules are default rules, but typically they are not robust
default rules as are those between neighbors. The fit between law
and intentions is not strong enough to cover the immense kind of
variation that is often found in transactions of this sort.
But once we realize that boundaries can come in time, then we realize
that they can come in other forms as well. Sometimes the boundaries
that one observes are financial instead of temporal. Thus just as
one has to observe the boundary between neighbors and the boundaries
that exist in the temporal dimension, it is also possible to find
financial boundaries as well. Here again the key is how to police
the lines that exist between two entities in the same property.
The ordinary person who buys a home does so with a mortgage and
that creates a boundary question: if the property is held in good
shape and there is no default on the loan, we see no change in the
possession of the property from the time the mortgage is created
to the time that it is discharged. But if the tenant in possession
does go into default, then a boundary condition of sorts has been
crossed. The danger that we face is that the tenant in possession
will no longer think that the losses in value from the property
will be his, but will instead inure to the lender. Heads I win and
tails you lose becomes a possibility that the borrower would never
own up to at the outset of the relationship, but which could become
his sole possibility of salvation at the end of the day. So steps
have to be taken to make sure that the possession goes back to the
lender in the event of default less the value crossing take place,
and from that simple insight the entire law of foreclosure and secured
transactions is borne.
The troubled state of decisions of takings have led to a chorus
for reforms. These have chiefly arisen in connection with land,
but could easily be extended to other areas, banking not excepted.
Yet even here the proposed legislation often suffers from one defect:
the want of clear boundary conditions for enforcement. Thus we are
told compensation is triggered only when regulation reduces the
value of property by-pick a number-30 percent. But that is 30 percent
of what? And how does one make that calculation in a world in which
there are no markets to mark the differences valuation? The question
of what should be done to handle the losses in value triggered by
land use regulation remains the central problem in ordinary takings
law. Solving it is not possible here. But noting that no solution
that has uncertain boundary conditions will work is appropriate.
So even in areas of one's own enthusiasms, a bit of caution is always
But it is perhaps too much here to go on about the importance of
boundaries, save one. The boundary between law and economics. Here
I think that the disciplines are to some extent different. The lawyer
seeks to delineate the rights and duties of citizens and to work
transactions within that framework. The economist seeks to understand
the logic of the rules and the consequences that they generate.
But in this case at least I would stress more the common mission
and less the boundaries between the two. I think that Ronald Coase
made his great contributions because he was able to use simple cases
to illustrate important economic principles. I believe that other
areas could benefit from the kinds of arguments I have made today
about the use and limitations of boundaries in ordering human affairs.
Intellectual property is surely one; and the study of the spectrum
and the Federal Communications Commission, alluded to above is yet
another. In fact I think that too much of economics today is driven
by the desire to obtain mathematical sophistication even at the
cost of institutional mastery. Subtle insights are often celebrated
while important institutional arrangements are often overlooked
because they are too obvious for serious theorists to dwell. Perhaps
that is the observation of someone for whom economics is a tool
that helps explain how legal rules emerged and why they are sound.
But even if this study is not the only way to look at the interaction
between law and economics, it is surely one of the most fruitful
ways to use the study of each to enrich the understanding of the
The reorientation of law and economics offers a response to some
of the challenges that are found in Frost's Mending Wall. The poem
concludes with the poet's protagonist unbowed:
He will not go beyond his father's saying,
And he likes having thought of it so well
He says again, 'Good fences make good neighbours."
One sees in this passage some of the recurrent themes in the traditional
defense of private property and industry custom. "He will not
go beyond his father's saying," makes it appear as though his
thoughts are just handed down from generation to generation, and
perhaps, just perhaps, are not capable of any rational defense in
the here and now. And the reappearance of the punch line "Good
fences make good neighbours" could lead one to believe that
simple repetition of this saying is tantamount to a rational argument
in its defense. At one level I sympathize with the protagonist's
attitude because it is all too clear that the nineteenth century
judges who did best by economics did so in advance of the theoretical
developments of the field that gave voice to the concerns they were
addressing. Yet once we can marry the newer insights to the older
rules we can perhaps do better than simple repetition. We can gain
some understanding as to why older principles served us well, and
why modern judicial efforts to accommodate the expansion of state
power have unanticipated consequences in at least two dimensions.
They both lead to inferior social institutional arrangements, and
they stand at odds with any coherent and systematic development
of general legal theory.
- *Richard Epstein is a professor at the University
of Chicago School of Law. The lecture in Law and Economics was
delivered at the University of Chicago in a somewhat different
version on February 6, 1996. c Richard Epstein 1996.
- Ronald Coase, The Federal Communication Commission,
2 J. L. & Econ. 1 (1959).
- See Thomas W. Merrill, Trespass, Nuisance,
and the Costs of Determining Property Rights, 14 J. Legal Stud.
- Richard A. Epstein, Nuisance Law: Corrective
Justice and Its Utilitarian Constraints, 8 J. Legal Stud. 49 (1979).
- 122 Eng. Rep. 27, 32 (Ex. 1863).
- Corporation of Birmingham v. Allen, L. R. 6
Ch.D. 284 (C.A. 1877).
- Roach v. Harper, 105 S.E.2d 546 (W.Va. 1958).
- Katz v. United States, 389 U.S. 347 (1967).
- Ronald H. Coase, The Problem of Social Cost,
3 J. L & Econ. 1 (1960).
-  11 Ch.D. 852
- A.W. Brian Simpson, "Coase v. Pigou Revisited,"
25 J. Legal. Stud.
- Coase, "Law and Economics and A.W. Brian
- See Hadacheck v. Sebastian, 239 U.S. 394 (1915).