Notre Dame Law Review Volume 88 | Issue 1 Article 1 11-1-2012 An Economic Analysis of Civil versus Common Law Property Yun-chien Chang Henry E. Smith Follow this and additional works at: http://scholarship.law.nd.edu/ndlr Recommended Citation Yun-chien Chang & Henry E. Smith, An Economic Analysis of Civil versus Common Law Property, 88 Notre Dame L. Rev. 1 (2012). Available at: http://scholarship.law.nd.edu/ndlr/vol88/iss1/1 This Article is brought to you for free and open access by NDLScholarship. It has been accepted for inclusion in Notre Dame Law Review by an authorized administrator of NDLScholarship. For more information, please contact [email protected]. \\jciprod01\productn\N\NDL\88-1\NDL101.txt unknown Seq: 1 7-JAN-13 9:11 ARTICLES AN ECONOMIC ANALYSIS OF CIVIL VERSUS COMMON LAW PROPERTY Yun-chien Chang* Henry E. Smith** Common law and civil law property appear to be quite different, with the former emphasizing pieces of ownership called estates and the latter focusing on holistic ownership. And yet the two systems are remarkably similar in their 2012 Yun-chien Chang and Henry E. Smith. Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the authors, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice. * Assistant Research Professor and Deputy Director of Center for Empirical Legal Studies, Institutum Iurisprudentiae, Academia Sinica, Taiwan. J.S.D. & LL.M., New York University. Email: kleibergate.sinica.edu.tw. ** Fessenden Professor of Law, Harvard Law School. A.B., Harvard College; Ph.D. (Linguistics), Stanford University, J.D., Yale University. Email: hesmith@law. harvard.edu. We would like to thank Benito Arrunada,˜ Avi Bell, Sam Bray, Tze-Shiou Chien, Wen- Tsong Chiou, Chi Chung, Yoav Dotan, Richard Epstein, Lee Anne Fennell, Mark Grady, Michael Heller, Adam Hofri, Cheng-Yi Huang, Shu-Perng Hwang, Yotam Kaplan, Amnon Lehavi, Ronit Levine-Schnur, Daphna Lewinsohn-Zamir, Barak Medina, Tom Merrill, Katarzyna Metelska-Szaniawska, Nicolas´ Nogueroles, Markus Puter, Hans-Bernd Schafer,¨ Alex Stremitzer, Dennis Te-Chung Tang, Doron Teichman, Pi-Fang Wang, Peng-Hsiang Wang, Wen-Yeu Wang, Tzung-Mou Wu, and participants at the 21st Annual Meeting of American Law and Economics Association held at Columbia Law School, the 15th Annual Meeting of the International Society for New Institutional Economics, the 28th European Law and Economics Annual Meeting held at University of Hamburg, Faculty Workshops at the Hebrew University of Jerusalem Faculty of Law and Institutum Iurisprudentiae, Academia Sinica, a Law and Economics Workshop at the UCLA School of Law, and the seminar held at National Taiwan University College of Law for helpful comments. Yu-June Tseng and Yi-sin Chen provided excellent research assistance. Research funds provided by National Science Council of Taiwan, Institutum Iurisprudentiae, Academia Sinica, and Harvard Law School are greatly appreciated. 1 \\jciprod01\productn\N\NDL\88-1\NDL101.txt unknown Seq: 2 7-JAN-13 9:11 2 notre dame law review [vol. 88:1 broad outlines for functional reasons. This Article offers a transaction cost explanation for the practical similarity and the differing styles of delineating property and ownership in the two systems. As opposed to the “complete” prop- erty system that could obtain in the world of zero transaction costs, actual prop- erty systems employ structures characterized by shortcuts in order to achieve property’s substantive goals of protecting interests in use. Overlooking this structure leads to the bundle of rights picture of property, even though property is a structured bundle of relationships. The architecture of property consists in part of four basic relationships, and a number of characteristic features of prop- erty automatically arise out of this architecture, including exclusion rights, in rem status, and running to successors. Where civil law and common law differ is in their style of delineation, which reflects the path dependence and network effects from a common mode of legal communication and initial investment in feudal fragmentation in the common law and Roman-inspired holistic domin- ion in civil law. This transaction cost explanation for the functional similari- ties but different delineation process in the two systems promises to put the comparative law of property on a sounder descriptive footing. INTRODUCTION Fragmentation is a theme in property theory, but the theory of property itself is deeply fragmented. At first blush, a major fault line in property lies between common and civil law. As is well known, civil law systems tracing back to Roman law place heavy emphasis on own- ership (dominion) and are highly grudging in giving in rem effect to lesser interests like leaseholds. By contrast, the common law empha- sizes the estate system and its many methods of carving up property, from life estates to defeasible fees and various future interests. And in the common law tradition in a broader sense, the equity courts devel- oped the trust, which is largely unknown in traditional civil law. Sometimes this conventional wisdom about the gulf between common and civil law of property goes so far as to claim that there is no such thing as ownership in the common law.1 Feudalism lives! 1 See, e.g., J.W. HARRIS, PROPERTY AND JUSTICE 69 (1996) (“Since what is conveyed is always an estate in the land, it has been widely assumed that ‘ownership’ of land, as such, is not a conception internal to English land law.”); see also 2 WILLIAM BLACK- STONE, COMMENTARIES *105 (“This allodial property no subject in England has; it being a received, and now undeniable, principle in the law, that all the lands in England are holden mediately or immediately of the king. The king therefore only hath absolutum et directum dominium; but all subjects’ lands are in the nature of a foedum or fee . .” (internal citations omitted)). \\jciprod01\productn\N\NDL\88-1\NDL101.txt unknown Seq: 3 7-JAN-13 9:11 2012] civil vs. common law property 3 This stark cleavage between common and civil law has taken on a new life with the so-called “legal origins” literature,2 which has influ- enced the World Bank’s pronouncements on development.3 Suppos- edly, having a common law rather than a civil law system correlates with economic growth. Different versions of the literature posit differ- ent causal mechanisms as lying behind the correlations (to the extent that they have persisted in the face of continued testing and method- ological questioning).4 Despite the favorable attention for their tradi- tion, common law legal theorists have been quite unreceptive to this branch of economic literature, partly because they doubt that the kinds of doctrines that distinguish civil from common law could possi- bly have real world effects, much less effects on the scale that the legal origins literature purports to find.5 How, if at all, is the distinction between civil and common law property important? Life goes on in the two systems in strikingly simi- lar fashion. Putting aside for the moment special features like the trust, ownership under the civil law and fee simple ownership of land in the common law system (and for the most part the respective notions of full ownership of personal property) coincide to a remarka- ble extent in their basic features: a possessory right to prevent inva- sions subject to qualifications such as for necessity, and supplemented 2 See, e.g., Rafael La Porta et. al., The Economic Consequences of Legal Origins, 46 J. ECON. LITERATURE 285, 285–87, 291–98 (2008); Rafael La Porta et al., Law and Finance, 106 J. POL. ECON. 1113, 1113, 1116 (1998); see also Paul G. Mahoney, The Common Law and Economic Growth: Hayek Might Be Right, 30 J. LEGAL STUD. 503 (2001) (finding higher growth in countries of common law origin and attributing effect to judicial independence). 3 Most notably, legal origins and normative conclusions based on them have fea- tured prominently in the World Bank’s Doing Business reports. See, e.g., WORLD BANK, DOING BUSINESS IN 2004, at xiv (2004), available at http://rru.worldbank.org/Docu- ments/DoingBusiness/2004/DB2004-full-report.pdf (relying on legal origins litera- ture). For critiques, see, for example, Benito Arrunada,˜ Pitfalls to Avoid when Measuring Institutions: Is Doing Business Damaging Business?, 35 J. COMP. ECON. 729 (2007). 4 See, e.g., Daniel Klerman et al., Legal Origin or Colonial History?, 3 J. LEGAL ANAL- YSIS 380, 380–83 (2011); Ralf Michaels, Comparative Law by Numbers? Legal Origins The- sis, Doing Business Reports, and the Silence of Traditional Comparative Law, 57 AM. J. COMP. L. 765, 774 (2009); Holger Spamann, Large-Sample, Quantitative Research Designs for Comparative Law?, 57 AM. J. COMP. L. 797, 805 (2009). 5 See, e.g., Mark J. Roe, Legal Origin and Modern Stock Markets, 120 HARV. L. REV. 460 (2006) (arguing for the greater importance of politics than legal origins as a cause of economic performance); see also Curtis J. Milhaupt, Beyond Legal Origin: Rethinking Law’s Relationship to the Economy—Implications for Policy, 57 AM. J. COMP. L. 831 (2009) (outlining an analytical framework that emphasizes the relationship between law and markets). The importance of the rule of law is a related but distinct question. See, e.g., KENNETH W. DAM, THE LAW-GROWTH NEXUS 31–32 (2006). \\jciprod01\productn\N\NDL\88-1\NDL101.txt unknown Seq: 4 7-JAN-13 9:11 4 notre dame law review [vol. 88:1 by duties (for example, for lateral support or to shovel sidewalks). Lesser interests, like leases and easements, despite some differences, bear a close resemblance in the two systems.