The anticommons as a theory of regulation

As I posted here last week, I attended last weekend a conference in Chicago on the “Future of the Commons and Anti-Commons” organized by my colleague, Lee Fennell, who’s done a formidable amount of work in this area in her short career. Lee has now created a website with the conference readings and audio and video files to enable people who weren’t there to join the discussion.

The topic, which focuses on the law and economics of property, isn’t my usual area, but I was happy to be included among a brilliant group of just about everybody who is anybody in this field – Lee Alston, Richard Brooks, Thrainn Eggertsson, Rebecca Eisenberg, Bob Ellickson, Nuno Garoupa, Michael Heller, Gary Libecap, Rob Merges, Tom Merrill, Steve Munzer, Carol Rose, Henry Smith, Katrina Wyman, as well as my colleagues Richard McAdams, Larry Solum, and Tom Ulen and, of course, Lee.

Here I, perhaps foolishly in light of my ignorance, present my peculiar take on the subject.

Everybody knows what the “commons” problem is – basically, the overuse of property that can result from people’s rights to use common property. Less generally known is the concept, described most notably by Michael Heller, of the “anti-commons,” which can arise from people’s rights to exclude or prevent use.

Heller first discussed the anti-commons problem in relation to the property rights regime in post-Soviet Russia. He explained why storefronts stayed empty despite thriving kiosks out front: a maze of rights by disparate parties with incompatible interests that prevented property from moving to its best use.

Although this seems like an arcane problem from a setting that has little to do with the contemporary US free market economy, in fact it has a lot to do with us. As an article co-authored by James Buchanan included in the readings highlights, the anticommons is a persistent pathology of modern bureaucracies. Environmental and other laws often give exclusion rights to what Buchanan called “zealots” with non-economic motivations who are insensitive to efficient uses of property. Because we’re persuaded that “efficiency” can’t be the last word, we get to a sad state of affairs in which resources are wasted and nobody is happy.

A selection from Gary Libecap in the readings poignantly describes how this is happening with water rights in the contemporary US west.  The fallowing of farm land to redirect water to much more valuable urban use may be in everybody’s interest, but it's being impeded by a maze of laws that has created an anticommons in western water.

Although this field  started as a property metaphor – a counterpart to the problem (or “tragedy”) of the commons -- it is really, in my view, more a problem for regulation and public choice theory. An anti-commons problem seems to arise when interest groups push for decision rights, often making their arguments in altruistic terms that appeal to the rest of the electorate. An anticommons can arise from private allocations of rights. But markets often prevent those situations from turning into problems, or "tragedies." The decision rights might impose costs, but they might nevertheless be better than any feasible alternative. Indeed, even when regulation creates the potential for an anti-commons scenario, markets can set things right.

For example, the readings include a famous article by Eisenberg and Heller applying the anti-commons idea to patenting of gene segments, which impedes drug development. I wonder (not being an expert in this area I have to only wonder) how much of a problem this really is given the many devices private firms can employ (merger, acquisition, licensing, joint venture) to overcome the initial “default” allocation of intellectual rights. Of course laws like the antitrust laws may get in the way, but then maybe the answer is to fix those laws rather than undoing the IP laws.

Moving to my area of corporate law, one can easily conceive of corporate social responsibility as a kind of anticommons, where all kinds of groups have a say in how the firm is managed and this prevents the firm from being managed efficiently. Think co-determinism in Europe. But as I’ve recently pointed out, in my Accountability and Responsibility in Corporate Governance, US corporate law has eschewed the goofier varieties of socially responsible governance, contenting itself with giving managers the power to take social concerns into account rather than giving decision rights to employees and others. The reason for this moderation is that jurisdictional competition for corporate law lets the market block inefficient decision rules that state legislatures otherwise might impose. For example, US corporate law long ago rejected one-shareholder-one-vote, the ultimate corporate anticommons rule. For corporate law, then, anticommons theory stands mainly as a warning of what might happen if we abandon our current system.

As the above indicates, I think maybe the property theorists have had this toy to themselves for too long and it’s time for some of the rest of us to play with it.

Update: My colleague Larry Solum responds: “Actually, I'm not so sure that the "regulatory anticommons" should be descrbied as an 'anticommons' problem at all.” He describes Buchanan’s article as “based on an analogy between an anticommons. . . and regulation” but says that the situation where regulatory permission is required isn’t an anticommons because “the bureaucrats who issue permits and the inspectors who sign off on construction are not owners, and fragmented ownership is the definition of an anticommons.. . . It's just hard to see what the analogy really illuminates, and it's pretty easy to see how the analogy easily leads to conceptual confusion.”

In fact, that’s my point, but I’m coming at it from precisely the opposite direction. I think the anticommons idea is mistakenly phrased as a property theory when it is really a theory of regulation. Buchanan and Yoon in fact don’t use the concept as an “analogy” to regulation, but rather show how it can be formally modeled as a theory of regulation.

Parisi, Schulz and Klick take this one step further by showing precisely how the problem develops – specifically, as a problem of perverse regulatory competition. Here’s a quote:

When regulatory authority is shared among multiple bodies, the ultimate degree of intervention depends upon two dimensions of regulatory activity. In this context, regulation can take the form of positive or negative actions, and the regulators’ authority will be either concurrent or alternative. In this article we present generalized theorems describing the level of regulation undertaken within each possible regulatory form, relative to the case of unified regulatory power, as well as a discussion of the welfare implications of the various regulatory forms.

What I am saying is that the property baggage should be jettisoned and the focus placed the public choice problem, as Buchanan & Yoon and Parisi, Schulz and Klick have done.  Indeed, I wondered at the conference whether the idea would have been more useful and conceptually clearer if it had originally been proposed along these lines.

Comments

[Marcin Tustin]

If you want to see it in a proprietary context, you could study the fragmentation of land ownership in England prior to 1925. Indeed, fragmentation was deliberately used to thwart any sale of land.