Property Rights - building an interdisciplinary approach

Droits de propriet lments pour la construction dun concept

interdisciplinaire
Maria Tereza Leopardi Mello
leopardi@ie.ufrj.br
Helosa Lopes Borges Esteves
hlborges@gmail.com

Present au Colloque Charles Gide, Paris, 2010

Version 2011
1

Resum
Nous proposons ici de discuter la notion des droits de proprit souvent utilise chez les
conomistes institutionnalistes dans une perspective non traditionnelle en relevant des lments
danalyse aussi bien juridiques qu'conomiques. On argumente que la dimension juridique est fortement
attache au thme, dans la mesure o les degrs de scurit, exclusivit et transfrabilit des droits
(caractristiques qui se croient pertinentes au plan de lconomie) ne se dfinissent que par la mise en
fonctionnement des institutions juridiques, y compris les processus dimplmentation du droit
(enforcement). On prsente une rvision de la littrature aussi bien juridique qu'conomique sur la notion
de droits de proprit, en mettant en relief leurs diffrences et leurs possibles complmentarits. Il y
existe une distinction fondamentale dans lusage qu'en font les juristes et les conomistes: les premiers
lutilisent pour designer la richesse accumule; pour les conomistes les droits de proprit sont
pertinents parce qu'ils sont capables de crer des expectatives pour lutilisation future des certains actifs.
La conception conomique de droits de proprit est plus proche de la conception weberienne de utilit
(biens ou services) considre comme la base de laction conomique dfinie en tant que opportunit
dapplication prsente ou future. la fin, on argument pour la ncessaire complementarit des lments
juridique et economique des droits, en essayant de pointer ce quon considere un approche fctivement
interdisciplinaire de rcherche, que comprendre la norme juridique aussi bien que leur mode
d'implmentation (enforcement) relle.
Mots-clefs: droits de propriet; droit & conomie.
Abstract - The main goal of this paper is to discuss the literature on property rights from a nontraditional perspective that is able to unite both juridical and economical elements in an
interdisciplinary analysis, suggesting a research methodology to be used in future developments. From
the legal dimension inherent to the object (property rights), we suggest that the themes comprehension
may be considerably enriched by the interdisciplinary approach. Therefore, the paper examines the
distinct analytical views, presenting a synthesis of the legal and economic bibliographies, as well as
some comments on the complementary of the economic and legal aspects of property rights.
Keywords: property rights; law and economics.

Property rights building an interdisciplinary approach

Introduction. 1. The property rights in economic literature; 1.1. Economic rights X
legal rights; 1.2. The effects of the allocation of rights. 2. Rights and property rights
from a juridical perspective. 3. Law & Economics research on property rights some
remarks for an interdisciplinary perspective.

Introduction
The main goal of this paper is to discuss the property rights concept from a perspective able to
integrate elements of legal and economic analysis, laying possible foundations for a methodology as well
as for an agenda for interdisciplinary research.
As will be further explained, property rights have a legal intrinsic dimension that is not sheer
irrelevant formalism, as the actual degrees of rights definition and endowment with the attributes of
exclusivity and transferability depend on a combination of private institutions and State legal system.
Therefore, the understanding of this issue could be considerably enhanced by an interdisciplinary
approach consisting of the construction of both an object and a common method to guide the production
of knowledge that could not be created from two separate disciplines (Kirat & Serverin , 2000:18).
Many authors have discussed the problems of an interdisciplinar research on Law & Economics,
some of which related to language usages and culture, while others to analytical outline and behavioral
assumptions1 (Mercuro & Medema, Posner, Baron & Hanann, Roemer, among others). We do not
intend to go deeply into these points here, but only to acknowledge one reason we consider the most
important to explain the lack of communication between legal scholars and economists: the way each
one delimits his specific subject and their different and separate levels of analysis.
Law scholars are concerned with the logically correct normative significance that should
correspond to every legal text. They investigate the meaning of the legal concepts, establishing a formallogical meaning and classifying them in a system deprived of any logical contradiction 2. On the other
hand, economic thinking concerns (or at least it should) real world events, and to the effective
distribution of control power over goods and services and the way this power is employed (Weber,
1964:251).
1 For instance, differences in approach to what motivates individual actions and preferences v.g.
generalizing the assumption of rational behaviour (Baron & Hannan, 1994) (although bounded and
under uncertainty) in Economics - lead to a series of unacceptable conclusions in Law (the definition of
proof, e.g.). Mercuro & Medema mention a )the problem of choice of the level of analysis (micro or
macro) appropriate for studying the relations between L&E; b) the differences between positive and
normative approach of the disciplines; c) different enphases given to allocative and distributive purposes,
as well as different criteria (justice, equity vs. efficiency) (Mercuro & Medema, 2006). Posner also refers
to the resistence from other social sciences to accept Economics reductionism as well as the limits to the
application of economic analysis tools to non-market behaviours (Posner, 2003).
2 A set of problems of the normative world, namely, a system of abstract, generic norms - in the sense
that norms describe only hypotheses (the production of rights falls apart from their application) and do
not address anyone in particular (or address the collectivity of people subjected to sovereign power).
This is a feature of a kind of Law system (which Weber called formal-rational), usually related to the
modern state. Norms must also be valid and consistent - validity conditions define the rules to produce
new rules in a legal order - conforming a legal order with the attributes of unity, systemic character and
completeness (Bobbio, 1989).
3

Even when economists are concerned with institutional-legal issues, they tend to build a
conceptual framework that not necessarily corresponds (clearly and directly) to similar concepts of legal
theory. The fact that the overwhelming majority of the Law & Economics literature come from Common
Law countries brings additional problems, as often the analysis refer to legal institutions that do not have
direct connection with systems based on the tradition of Civil Law3.
While lawyers generally lack the necessary focus on the real effects of normative systems,
economists lack an understanding of the internal logic of legal relations. Especially in Civil Law
countries, the legal culture - mainly formalistic - associates Law to a rational construction of standards
from which results, as Kirat & Serverin summarize, a legal science without society, alongside with social
sciences without Law, leading to the false idea that the legal one is a closed normative system and that
social rules are based on grounds other than the law (Kirat & Serverin, 2000:06).
We do not argue that strictly disciplinary analyses are irrelevant; rather that in some instances the
interdisciplinary integration enhances the understanding of the research subject, since economic elements
can only be properly understood when considered against its relevant legal framework; and the other
way around: legal phenomena might be better understood through an economic analysis. It seems to us
that this is the case of property rights.
Therefore, for an integrative perspective of Law and Economics applied to property rights we
must consider the legal system not only as a set of rules correctly inferred, but in its sociological
meaning, as a complex of effective motivations to the real human conduct (Weber, 1964:252). This is the
direction that we adopted when referring to the legal system in this paper, and it is also in this sense that
we will develop our analysis.
We start with a review of economic literature related to property rights, identifying the meanings
attributed to this concept and their implications. In Section 2 some legal definitions concerning rights
(including property rights) will be discussed.
As we shall see, there is a fundamental distinction between the economic and the legal meanings
of property rights definitions: from the legal perspective, it points strongly to the stock of accumulated
wealth, while the economic view emphasizes the expected yields of an asset. The concepts of property
used in the New Institutional Economics (NIE) present many similarities with the utility notion in the
Weberian tradition defined as the opportunity of present and future use.
In the last section, the necessary complementarities of economic and legal aspects of property
rights will be highlighted, as we try to present what we consider an effectively interdisciplinary approach
to the subject. For that discussion, we will make use of a Weberian approach that allows for a more
precise treatment of the difficulties to integrate Law and Economics, and which may, in part, be taken as
complementary to the NIE contributions.
1. Property rights in the economic literature
The relevance of the definition and assignment of property rights for resource allocation in the
economy is pointed out by several authors. The main question, as currently presented by the New
Institutional Economics, has its origin in Coase (1961) who, in addressing the problem of externalities,
proposed to analyze it from an opportunity cost perspective - comparing the income from a given
combination of factors and the potential revenue that could be obtained with alternative arrangements.
Instead of addressing the production factors as things, Coase suggested to consider them as
rights that (almost) never are unlimited (since even with a property title, for example, the owner of the
land may have restrictions to the propertys destination). In this view, the right to do something that will
3 That is what we named the translation problems, either because it reflects the different treatments that
Law and Economics give to the same subject, or because it reflects differences between Civil Law and
Common Law traditions.
4

produce an injury to others (pollution, for example) can also be seen as a factor of production; and the
cost of exercising that right (to use the pollution) is always a loss for those who suffer the effects.
With this proposition, Coase reversed the conditions in which the problem used to be considered,
turning economists attention to the possible comparison among alternative institutional arrangements.
The externalities problem began to have a dual approach: individual "A" should be allowed i.e., have
the right - to cause damages to individual "B" or the other way around (as avoiding the damage in B
means harming "A")? The problem is not to avoid damage, but to avoid the greatest one. What should
thus be assessed is whether it is worth, for the society, to permit or inhibit the actions of "A" - and the
answer is not obvious, unless you know the exact values of all gains and losses involved.
Coase proves the existence of an alternative solution for correcting externalities. Qualified as a
private arrangement, this alternative is the possibility of exchanging rights (to exercise certain actions),
which raises the question of the value of competing rights, and points to the need to precisely define
rights so that they can be traded in the market (Kirat, 1999).
Coases famous propositions open a powerful way of thinking about law and its economic
impact, once the entitlement (delimitation of rights) seems to be a legal decision (a decision made by
political-legal systems):
while the delimitation of rights is an essential prelude to market transactions ultimate
result (which maximizes the value of production) is independent of the legal decision. (depending)
on the assumption of zero transaction costs. (Coase, 1988:158).
Notwithstanding, the second part of the Coases statement, formulated later as a theorem 4, can
lead to misguided ideas on the importance of the legal aspect of the subject; in principle, Law should be
neutral, in the sense that the legal regime of rights allocation would have no economic consequence,
under the condition of negligible transactions costs
This interpretation, however, poses some problems. Firstly, because the assumption of zero
transaction costs is provisional, adopted only to establish an ideal situation, from which the author
defends the economic importance of the law in the (real) world of positive transaction costs. In the real
world, the main function of law would be to reduce the transaction costs by means of rules and
principles such as the binding force of contracts (Kirat, 1999:60).
This is also Norths understanding, when he notices how difficult it is to economists to accept the
important role of institutions discussed in Coases The Problem of Social Cost. For him, the strongest
challenge to traditional economic theory is the statement that institutions matters when business
transactions are costly; and negotiating is ever costly (North, 1993:24).
Coase himself could agree with this understanding: as he pointed out in the 1988 comments on
his own text, although the world of zero transaction costs has been described as a Coasian world,
nothing could be further from the truth. It is the world of modern economic theory, one which I was
hoping to persuade economists to leave. What I did was bring to light some of its properties .
.(I)n such a world the allocation of resources would be independent of the legal position, . The
reason why economists went wrong was that their theoretical system did not take into account a factor
which is essential if one wishes to analyze the effect of a change in the law on the allocation of
resources. This missing factor is the existence of transaction costs (Coase, 1988:174-5).
From another perspective, even if the transaction costs were null, the theorem postulates that it
is irrelevant how rights are allocated, but the fact that they are delimited and allocated (their entitlement)
matters, as the market solution only works if the rights that can be the subject of transactions are well
4 Under negative externalities and mutual costs, an efficient solution independs of the initial endowment of rights; in the
absence of transaction costs, a private arrangement is preferable to any other solution, in particular taxation.

defined (their entitlement is a precondition of their marketing). The point is whether a legal system is
needed for allocating rights; we believe that it is, and will resume this point in the next section.
1.1. Economic rights vs. legal rights
Following Coase, other authors presented key contributions to this research area, like Alchian &
Allen , Demsetz, Williamson, Alessi, Barzel, among others. One can find in the literature, however,
different definitions of property rights.
Williamson (2000: 599) states that property rights are the rules of the game governing a given
society, a definition that implies the right to do something (similarly to Coase, for whom the relevant
concept is the right to perform certain actions).
Libecap (1989) characterizes property rights as social institutions that define or delimit the scale
of privileges granted to individuals over specific assets.
Alessi (1990) defines it as the rights of an individual related to the use, rent extraction and
transfer of resources.
For Alchian & Allen, property rights consist in the expectations a person has that his decision
about the uses of certain resources will be effective (1969:158).
Also in Demsetzs conception, property rights have a strong relation with expectancy, once they
derive their significance from the fact that they help a man form those expectations which he can
reasonably hold in his dealing with others. An owner possesses the consent of fellowmen to allow
him to act in particular ways, (expecting) the community to prevent others from interfering with his
actions (Demsetz, 1967:347)
Barzel (1997) considers property right (in the economic sense) as defined by the possibility (in
expected terms) of an individual consuming a good, or services related to an asset, directly or indirectly,
through exchange. Closely related is the authors concept of transaction costs, defined as the costs
associated with the transfer, capture and protection of rights (Barzel, 1997:03-04).
For North, property rights are part of what he called formal rules: economic rules defining the
bundle of rights over the use and the income flowing from the object of property. He also remarks that
the actual structure of rights especially their mandatory character define their potential opportunities
(North, 1993:67).
There is, in all these concepts, an emphasis on an expected element what determines the
economic value of a good or service is the potential possibility of its employment. Therefore, the
relevant subject of a right (and of its protection) is the guarantee for the owner that he will keep his
decision power over the use of a good or an asset. The more protected such right, the safer the
guarantee.
There remains some confusion of legal and economic terms in this context. It is essential to
understand the difference between property rights for the economic theory (rights effectively held by
individuals in economic activities) and property rights for the Law (rights held by individuals under the
state-legal system).
Barzels distinction between economic rights and legal rights, though, should be further
explored, as, for legal scholars, it may sound very strange that there may be a right that is not legal ...
Let us examine, then, the passage where the author makes that distinction:
The term property rights carries two distinct meanings in the economic literature. One, ,
is essentially the ability to enjoy a piece of property. The other, , is essentially what the state
assigns to a person. I designate the first economic (property) rights and the second legal
(property) rights. Economic rights are the end , whereas legal rights are the means to
achieve the end. (Barzel, 1997:03)
6

The distinction may be seen, initially, as a difference of points of view: the one that is relevant to
the economic analysis is the effective power of an individual over the asset; the juridical perspective
points to the entitlements by the State to some individuals. Barzel, however, also comments on the
relationship between the two 'kinds of rights' stating that the existence of well defined, recognized and
enforced rights (legal rights) strengthens the property right in its economic sense, but this recognition
(by state law) is neither a necessary nor a sufficient condition for the (economic) rights to exist. The
argument takes into account that when rights are implemented by the State, economic agents can rely on
a "third party" to resolve conflicts, whereas in the absence of such safeguards, transactions involving
economic rights would have to be self-applicable (self-enforced).
Many economists employ the concept of property right as if a distinction between actual and
legal rights could be drawn, and even as if the existence of a right to do something could be proved by
the fact that someone did it actually and was not penalized for doing so (Cole & Grossman, 2001)
This issue points to the controversy on who defines the property rights and how (by what means
or procedures); in particular, it refers to the role of the State for this matter.
Some authors postulate that the definition of rights is the result of a private transaction,
eventually confirmed by a state legal order (e.g. Umbeck, 1997); or that the emergence of property
rights could be explained as a response to the desires of interacting individuals for new benefit-cost
possibilities; or in order to internalize externalities when the gains become larger than the costs of
internalization (Demsetz, 1967:350)
There is no need for institutional or judicial concerns in this analytical framework, as rights could
be guaranteed only in a rational behaviour basis that of an ideal homo oeconomicus.
But is there something that could be called right without any reference to a legal system? Or
with no reference to state law?
Although economists tend to minimize the role of the state in defining property rights even
amidst institutionalist schools of thinking many authors recognize the close relationship between
institutions, law and state legal system.
North, for instance, states that it is difficult to sustain a complex system of exchange out of an
enforcement system carried out by a third party, which could use the force if necessary (1993:27) and
that appropriation is a function of legal rules (1993:51-53).
Calabresi, in turn, in his discussion of the different forms of entitlement, is very critical to ideas
considering the state as a coalition of friends to enforce rules which accomplish the dominant coalitions
desire: such a view does not strike us as plausible if for no other reason than that the state decides too
many issues in response of too many coalitions. So, the problem of entitlement is presented as a legal
decision and, since society must enforce that choice, a minimum of state intervention is always
necessary. (Calabresi & Melamed, 1972:1090).
The state not only has to decide whom to entitle, but it must also simultaneously make a series
of second order decisions. These decisions go to the manner in which entitlements are protected and
to whether an individual is allowed to sell or trade the entitlement (Calabresi & Melamed, 1972:1092).
Actually, the different forms of entitlements discussed by Calabresi & Melamed are nothing but the
different ways of state intervention for protecting or enforcing rights and the different degrees of state
intervention needed for these goals.
Among legal scholars, one can find a rather different perspective about the formation of property
rights, since they tend to recognize a fundamental role of state and community as a source of property
definition.
Actually, it is difficult to accept the definition and assignment of rights without at least one
authority endowed with the legitimacy and power necessary for it, or at least without the existence of a
social/collective procedure that represents a minimum social recognition of rights.
7

The social recognition of a right implies, firstly, that even the debtor recognizes himself as such
(i.e., he acknowledges that he has an obligation to the right holder). Secondly, it requires some sort of
disapproval for the breach of obligations (i.e., it requires some sort of sanction, which represents an
external security in the sense that the right holder can count on certain conducts).
The reference to a right always requires some degree of social recognition, so that a group of
individuals agrees that certain goods are under the power of certain individuals this seems to be the
meaning of Demsetzs concept mentioned above.
In this sense, a right is always socially recognized, by the State and/or by a group of people,
otherwise it would not be a right - if ones power to rule over any asset is not minimally recognized by
others, that means it will have to be protected in constant vigil - and by force in order to keep it under
ones possession; in these circumstances, there is no right5.
The question can be better addressed if we make use of the Weberian Sociology of Law. To own
a right (including the meaning that matters to the economic analysis) means to be able to request the
help of a coercitive mechanism in favour of a particular interest.
Although this safeguard does not rest only on the States coercion, it always assumes some kind
of social recognition, derived from a legal or from a conventional order 6. In this sense, we agree with
Barzel and other institutional economists when they state that the rights do not exist only when
recognized by the State, provided that there is a system - legal or conventional - with some empirical
validity. In other words, one can only talk about a right if it is supported by a social order that tends to
be observed by a group of individuals, as its rules seem to them as being mandatory or as models of
conduct7.
That is one of the reasons why the definition of rights reduces transaction costs: the guarantee of
due observance of rights granted and the binding nature of contractually settled rules. A contract creates
rights and obligations recognized as binding; it is a source of obligations legally recognized and,
therefore, requirable.
In abstract terms, one can even consider the possibility of bargain and exchange without an
institutional framework that rests simply on pure interpersonal relationships and is anchored in the selfinterest of the parties. However, in the absence of an external guarantee from the State, the existence of
repeated, systematic and impersonal transactions in a world of incomplete contracts and uncertainty
would be put at risk - in other words, the transaction costs would be prohibitive.
In this sense, the legal order increases the safety required by economic agents with a view to
maintain their present or future power of disposition on assets (Weber, 1964:254), which is crucial to the
allocation of rights.
In short, if economic analysis concerns itself with the effects of the allocation of rights on the
behaviour of agents and with the economic results thereafter, then it is important to take into account by
which means the legal system guarantees with more or less safety such rights.
5 If we consider any provision and control power over an object as a right, even if its maintenance
depends entirely on violence and no one feels obliged to observe it, then the term designates nothing
special if any control is a right, there is no longer any interest in this particular category of social
relation.
6 An order consists in a set of conventional or legal rules. In the former, the obedience is guaranted by
general sanction diffusely applied by the group. In a legal order, the guarantee is due to a formalised and
institucionalised action of a group of individuals whose mission is to enforce the rules and punish
deviation (Weber, 1964: 27).
7 That is an attribute of a legitimate order in Weberian sociology. Economic social action is oriented by
an order when its rules are seen as mandatory or as model to be followed; which raises the probability of
the action actually being in accordance to the rules of a valid order.
8

1.2. The effects of the allocation of rights

The economic relevance of property rights is related to the effects of the allocation of rights on
the behaviour of economic agents and the functioning of market mechanisms. In short, property rights
matter for economic transactions because they are subject to potential transactions in the market and
thus contribute (if well defined, exclusive and transferable) for the creation and organization of markets
and for the reduction of transaction costs. Effects of the allocation on the agents behaviour and in the
market working mechanisms may exist if:
a) A clear delineation of the right and its allocation encourages its holder to preserve the object, using it
more efficiently. He will have an interest in doing so, for he will be able to appropriate the current and
future yields and income from the object. There is an extensive literature in economic theory arguing that
assets that are not captured by individuals i.e. public or common goods -, and from which anyone can
benefit without bearing any expenses, tend to be over exploited (Cooter & Ulen, 1988:12-13 ).
b) The delimitation facilitates exchanges, in that it reduces the costs associated with the effort to
properly define the limits of the right, and at the same time reduces the possibility that different
perceptions of the parties may lead to deadlocks in contractual relations. In this sense, the transferability
of a right is an additional condition that accrues to its economic value, since in a market economy one of
the most important components in the valuation of property and assets is its liquidity. This condition is
essential to understand the role of a clear definition of rights in the organization of markets and
reduction of transaction costs.
These concepts emphasizing an expectation element in the property rights definition (Alchian &
Allen, 1969; De Alessi, 1990; Barzel, 1997) imply that the property of an asset enables the appropriation
of both present and future rent flows , and thus the expected future rent flow affects the value of the
right itself (Fiani, 2003).
On the other hand, sometimes entitlements are difficult to define, because: a) as goods and
services have multidimensional attributes, there is a bundle of rights associated to each good/service,
determining the utility an individual can earn from its use; b) there are costs of establishing, measuring
and enforcing rights - and the more complex these attributes, the higher the costs. In consequence, some
attributes will remain undefined and some rights unenforced until the expected profits from their use
surpass the costs (Barzel, 1997). These undefined rights are not rights in legal sense, actually.
Hence, the economic significance of property rights may include elements that cannot be called
rights from a legal perspective. For example, the location of a business say, a hotel near the beach - is
an element that integrates its value, as it gives the owner an extra income derived from this particular
location. From a legal perspective, one cannot state that there is a right to that location 8, but an
economist would not hesitate to call it - the location a property right.
In this way, the economic concept of property rights is close to the Weberian notion of
maintaining power of control and provision of opportunities, which also contains a dimension related to
the future - the expectations of keeping that power. Weber defines goods or services as a set of
opportunities for current or future applications (Weber, 1964:50), implying that economic action is
guided by these opportunities. For Swedberg, one can buy an asset expecting that it will be useful - it
will generate profits or satisfy needs -, but what we acquire in fact is an opportunity to use it in different
ways (Swedberg, 2005: 54). Thus, an asset (or right) can be considered as a set of opportunities that can
be used jointly or separately, by one or more individuals, at different times.

8 We are not arguing that the location does not have legal significance. Its significance, however, is part
of an asset (a goodwill, e.g., but cannot be separated from it), and as such may integrate and affect the
value of an asset; it is, though, only transferable with the property or with the business.
9

This is why this concept is employed for discussing the relationship between Law and
Economics: the law affects the interests of the individuals as it creates predictable opportunities to
maintaining assets at ones disposal (Weber, 1964:254).
In a similar way, John Commons, in the 1920s, remarked the fact that capitalism is based upon a
guarantee of market opportunities, much more than on the appropriation of material goods. His
discussion about the relevance of defining and assuring rights over intangible assets goodwill, trade
marks, patents and copyrights (in Commercial Revolution) - is very much clarifying.
From a legal point of view, intangible assets are immaterial things i.e., things that are not
physical and can only be the object of a right because are made delimited and exclusive by the law.
Goodwill, trademarks, patents and copyrights are intangible assets that become appropriable as they are
protected by law - as property or by contracting and liability rules.
Appropriability must be understood as a changing attribute technological development
constantly turn appropriable some goods that were not before, and thus facilitating transactions (e.g.,
carbon credits, rights to pollute etc.). On the other hand, if intangible assets are neither defined nor
appropriable, there is no right, but an expectation of opportunity without any legal guarantee, although
it could have economic value.
An asset becomes a right when its use is guaranteed by some legal system, which can provide
more or less possibilities to detach such opportunities and transfer them separately. The process of
developing economic relations, through which a continuous creation of new markets can be observed,
requires a legal system capable to develop and enable the creation of new and varied types of rights on
the same object (Mello, 2006).
In short, whatever the economic definition of property rights, the legal dimension is inseparable
from it, as the power to dispose - or the degree to which the right is limited, exclusive and transferable is not indifferent to the external security provided by the legal system.
In other words, when the appropriation acquires a legal form, it increases the guarantees that it
will have social recognition and will tend to be respected. We therefore support Swedbergs assertion
that, thanks to the law, "... the promises are fulfilled more often and property is better defended."
(Swedberg, 2005:161).

2. Rights and property rights from a legal perspective

The classical essay by Calabresi & Melamed (1972) addresses the importance of the legal form of
protection when distinguishing entitled rights according to whether they are protected by property,
liability or inalienability rules. Property exists when the right is only transferable through a voluntary
transaction in which the owner agrees with the purchaser as to price and other conditions. In contrast,
the right will be protected by the liability rule when the owner can be deprived of his right by means of
damages payment, irrespective of his will. Other rights are protected by a rule which excludes them from
the possibility of being exchanged, i.e., by inalienability. The three forms of protection represent
increasing degrees of state intervention9. The authors go on then to discuss the reasons by which the

9 Under the property rule, once the original entitlement is decided upon, the state does not try to
decide its value, once it is voluntary agreed by the parties. Liability rules involve na additional stage
of state intervention: not only are entitlements protected, but their transfer or destruction is allowed on
the basis of a value determined by some organ of the state rather than by the parties themselves. In
cases of inalienability, the state intervenes not only to determine who is initially entitled and to
determine the compensation that must be paid if the entitlement is taken or destroyed, but also to
forbid its sale under some or all circumstances (Calabresi & Melamed, 1972: 1092-3).
10

entitlements are defined and, more importantly for our point, how differences in the forms of protection
matter for economic analysis, to the extent that they affect the economic results of such entitlements.
In a major part of the Institutional Economics literature, however, the use of the expression
property rights is more or less spread, and seldom any distinctions are made between property and rights
accruing from civil liability, for example. In addition, even if we take the distinctions proposed by
Calabresi & Melamed, we can see that the property rule also does not correspond entirely to the notion
of property in civil law systems, in which that expression may lead to the impression that it involves
some kind of rights in rem (i.e. rights relating individuals to things).
Kirat clarifies this issue, identifying property rights ... comme des droits subjectifs, socialement
reconnus, qui se rapportent la jouissance dun bien ou dune ressource et non pas leur
appropriation prive, qui correspond la categorie de lownership: nous pouvons avoir um droit
respirer um air pur (un property right), mais nous ne sommes pas propritaires de lair que nous
respirons. La tradution des ces deux notions diffrentes que son la property et la ownership pour la
mme expression de droits de propriet est source de confusion (1999:63).
But, then, what is a property right from a juridical point of view? Certainly, it depends on each
national legal system, but we can point some general features which are widespread in Civil Law
countries. In these systems, property right, which in lrgal systems is essentially equivalent to an
ownership right, is a kind of right in rem, which is distinct from personal (or obligation) right (right in
personam).
A property right in the legal sense consists in the direct and immediate power that an individual
has towards a thing, which may well be material or immaterial, movable or immovable. In order to enjoy
this power, the holder does not need any intervention or intermediation from third parties; the existence
of the right places its object directly related to the subject of the right, without depending on an act or
provision from a particular person (Pereira, 2003).
Another way to see this is the perception that an ownership (in rem) right generally reflects the
relationship between an individual and all the others. The rights holder an active subject - has
exclusivity over the object, and all the other members of the society have a general duty of abstention,
namely the obligation to not disrupt or hinder the object of right (Cordeiro, 2003). Ownership rights,
then, would be characterized by the existence of a passive universal obligation, imposed on all members
of society, which must respect the holders right.
A property right may be seen as a bundle of basic rights, namely the rights of possession, use,
fruition and disposition over the thing. These rights, however, may or may not belong to the same
holder.
There are many situations in which someone may have an ownership right over something he/she
does not possess, subdivided into several groups. The rights, in these situations, are generally divided
according to the purpose for which they were created. There are guarantee rights (usually constituted to
secure the fulfilment of an obligation, for example, the mortgage), acquisition rights (in the case of a
promise to buy a property, the promising buyer has the right to purchase it) and the rights of use or
fruition (which give the holder the possibility of effective share in using the thing or in earning the
income derived from the object).
In many Civil Law systems, rights in rem are always previously defined by law; they are
property, possession, use, fruition, mortgage, among others. Individuals do not have the ability to create
or modify the content of such rights through private arrangements.
Note that possession is also protected as a right characterized by the fact that someone detains
something acting like an owner, with animus domini (Pereira, 2003).
Thus, the economic concept of property rights includes the legal concept, but is not confined to
it, covering other kinds of real rights and, in particular, those that can be created by private
11

relationships through contractual arrangements, liability rule, torts which are called personal or
obligation rights.
Those rights in personam reflect a relation between people, and their object is always an
obligation a certain behaviour of the parts of a transaction (not the things involved) (Cordeiro, 1993).
This obligation affects only the passive subject of the relationship, and consists not on a general duty to
refrain from intervening in someone elses property, but in a specific behaviour.
Personal and ownership rights can be distinguished by many criteria, mainly: a) rights in rem are
exhaustively established in statute law, while personal rights can be created freely through voluntary
agreements; b) the lawsuits that can be proposed to protect them are different in each kind of rights. For
protecting rights in personam the lawsuit seeks to prevent or repair damages this is the case of judicial
mechanisms for correcting externalities, like nuisance, for instance, which fall under the rules of liability.
On the other hand, a lawsuit filed to protect a property right seeks compliance to a specific obligation:
the restoration of the thing to its owner or the prevention from invasions in the property - and only
secondarily will be solved with the payment of damages.
Besides in rem and in personam rights, the economic notion of property rights also includes a
kind of right that involves freedom in the decision-making process - the right to do or not to do
something in a free choice basis. This latter right comes from a general principle in legal systems, which
states that no one is obliged to do something except when commanded by law; therefore, in the absence
of a specific law commanding a behaviour, individuals are free to decide whether or not to do
something.
In sum, there are many different legal categories under the economic idea of property rights. For
law scholars, however, this unified concept can be viewed as a distortion, mainly for civil lawyers (e.g.,
Pretto, 2001). Even in Common Law literature, legal scholars feel uncomfortable on how economists
define property rights in ways so divergent from legal standards and on how much these definitions can
bias economic analysys (Cole & Grossman, 2001).
As we have already seen in the previous section, a crucial aspect of the economic concept of
property rights is its relation to expectations it refers to assets whose present value depends on its
future opportunities of employment. The legal meaning, however, is concerned with accumulated
wealth.
Notwithstanding, the U.S. literature acknowledges that the views of the Courts concerning
property rights are increasingly approaching the economic definition, leaving behind the traditional
definitions of the legal literature (Cole & Grossman, 2001; Merril & Smith, 2001).
This process has been for long described by Commons, who perceived the extent to which the
economic approach led to highlight some aspects of different categories of rights which independ from
their original legal definitions, unifying them for economic analytical purposes: The transition from
rights of property in the use-value of things to rights of property in their exchange-value is a change
from physical things to a going business and, first in point of significance is the fact that it unites
property and liberty in an identical concept. (Commons, 1959, 22).
Commons is here commenting on U.S. Supreme Court decisions concerning the concepts of
freedom and property. From a conception in which freedom meant only the absence of servitude and
slavery, and property only the use-value of material goods, since 1890 property began to represent
exchange value of some material or immaterial thing, The concept of freedom, was later enlarged to
mean, among other things, the right to acquire, keep and dispose with property, to contract in any way
desired to the fruition of someones choice on how and where to work on it.
As an exchange value, property means everything that may be the object of a transaction
(transfer of entitlement). To the extent that freedom (although not always) may also be purchased or
sold, freedom and property melt together. Under an obligation, for example, the freedom of the
12

individual is constrained in a way that, for the owner, is endowed with an exchange value it would then
be his property.
Commons divides property into two categories. The former is the burden, an obligation
(basically debt) of the debtor to the creditor, the owner of such burden. The other one are the
opportunities, someones freedom to choose among alternatives. Both have an exchange value for the
owner of the right, and this value is always an expectation. It exists at present, but dependent on an
expected future behaviour.
It is clear, then, that property rights in the economic sense have a broader meaning, including
different categories of rights in the legal sense, but including also mere uses and claims of rights, as
noted by Cole & Grossman (2001).
If we intend to translate to the legal framework the expression property rights as adopted in
the economic literature, the closest concept is the idea of subjective rights - or simply rights - regarded
as legally protected interests, to which a right of lawsuit (in the sense that they can be protected by the
legal system) corresponds. This is a sufficiently broad concept, which fits better to economic sense as it
includes several kinds of rights.
The Figure below clarify the distinct meanings of rights, showing the intersection between the
economic and the legal ones.

13

Power to profit from

economic
opportunities (of
using an asset).
Maintaining the
power of control and
provision of
opportunities (Weber)

Opportunities guaranteed by
legal system: subjective rights
(legally protected interest +
right to judicial lawsuit)
freedom

Rights in
personam

Rights in rem:
property;
possession;
mortgage; etc.

In the Figure, the rectangle represents the economic view of property rights, in which the
most important element is the expectation of using some asset in the future which is what we call
economic opportunity. Some of these opportunities are recognised and protected by the legal system
then constituting properly rights in the legal perspective, represented in the Figure by the box inside the
rectangle in other words, the legal perspective is contained in the economic one. There are many kinds
of rights (real, personal, freedom), represented here by the ellipsis in the box.
Fundamentally, the economic meaning of property rights is related with an expectation, a chance
to use an asset in the future this is the very basis for its economic value (pricing) and significance
more than the accumulated wealth.

3. Law & Economics research on property rights some remarks for an interdisciplinary
perspective
Beyond merely recognizing that the very idea of a right is always a legal concept and that it
requires a legal or conventional order, we intend to emphasize that the economic analysis cannot be
detached from the legal one. After all, economists are interested in the real outcome of the allocation of
rights, so that the rights that matter to them are those actually respected and enforced, which depends
not only on the law but also on the institutional apparatus involved in the process of enforcement of
rights.
Different categories of rights have different degrees of protection, different ways in which they can be
created, and these differences may affect economic results. This means that the analysis does not end in
the text of a legal rule, but should aim primarily at the result of its actual implementation. If we want to
discuss if property rights are well defined and guaranteed in some specific situation, we need to know
what actions might be taken in order to defend these rights (if lawsuits are possible, if there is a broad
social recognition of the right, if there are alternative channels for solving conflicts, what are the
dominant interpretations of the law, if the decisions are easily executable), which would require a legal
analysis - not only that of the rule, but of all the legal system in which the rule is embedded.

14

The legal analysis relevant to the economic perspective of property rights in our view is not
restricted to the formalism of the normative world, but is close to legal realism 10. The actual allocation of
rights is a result not only of their forecast in an abstract standard, but the whole apparatus involved in
their operation, which together form an institutional system of enforcement.
This is the greatest contribution that the lawyer can bring in a Law & Economics approach:
research on the enforcement of the law - which is legal and is part of a dogmatics - is necessarily a part
of our problem of interdisciplinary research. We must accept that the production of effects of rules in the
real world depends, in part, on purely legal issues, whose understanding requires taking into account the
dominant legal culture in a particular place / time.
At this point, one should bear in mind that the rights (of concern for the economic analysis)
admit varying degrees, according to their greater or lesser effectiveness - which can only be assessed by
empirical research.
From our previous arguments, two conclusions stand out:
a) The "right-of-property-delimited-and-assigned", which concerns the economic point
of view, is not confined to setting out rules of law. One cannot say that there is a right
only because it is enshrined in law, if the difficulties of implementing it are so great to the
point that it is perceived as lacking. The opposite is also true: the right may not be void
because the property is not expressly provided for in law, since there are other forms of
guaranteeing the subjective rights that allow some form of ownership.
b) The effectiveness (the security) of rights admits intermediate degrees between the total
lack of effectiveness and the absolute one, which can only be assessed by means of
empirical research.
The following table summarizes these conclusions:
Levels of effectiveness of rights
0
Absence
of
any socially
recognized and respected right
maintenance of the right to
dispose of goods depends upon
permanent surveillance and
power.

100
Actual protection varies according Perfectly effective right right
to:
broadly recognized by the
members of society; efficient
i. social recognition;
ii. enforcement costs (access to means to guarantee the right
justice or to alternative dispute available.
resolutions, etc.)

The allocation of rights, in turn, can produce effects on the behaviour of economic agents and the
functioning of market mechanisms, as thoroughly discussed in the economic literature. It serves to
encourage the holder to preserve the object of law, to provide its more efficient use under lower costs,
to reduce transaction costs, and to facilitate trade. But this also needs to be shown empirically. While the
production of a legal rule has always been intended to induce human conduct, the ability of a legal
10 Like Commons work discussing the evolution of property definition as interpreted by U.S.
Supreme Court. For him, only empirically defined property would be relevant to the observer of
capitalism. In the legal- realism literature, the law is created in an experimental way, in a continuous
process through which the judge interprets and adapts the rules to real social and economic life. So one
must not look for a logical and abstract meaning for legal concepts, because this meaning varies
according to the social context.
15

system in producing the desired result is variable, and depends on many other factors - external and
internal to the legal system.
To check if some particular configuration of rights is a motivation for agents behaviour requires
identifying precisely what is the actual configuration, assuming even that it may be different from the
wording or the legislative intent of the original legislators (or the policy makers). This warning is
directed particularly to lawyers, who tend to disregard the importance of the elements of the real world
in their analyses; but also serves to economists, in that they often see institutions as capable of
implementing a perfect system of incentives; in some ways, the economists also ignore the real mode of
operation of the legal system and devise a system of standards ideally capable of establishing incentive
structures that ideally lead to a given conduct on the part of a rational homo oeconomicus, also ideally
designed.
In other words, one must approach the problem of effectiveness of legal norms, not only in a
formal way, but in a substantive one, by asking whether and in what conditions legal rules effectively
motivate the regular conduct of economic agents, and comparing target ends with those actually reached
(Teubner, 1986).
In Webers view, the law cannot be seen as a tool empty of content that would only ratify factual
relations created by economic agents. The legal system must be considered both as a cause and as an
effect of the regular acts of economic agents. Such understanding is crucial to identify, in concrete
historical contexts, the configuration of the cause and effect connections between legal rules and the real
behaviour of economic agents, as well as the more general effects (the effectiveness) of the rules for the
economy.

Bibliography
ALCHIAN, A. (1965) Some economics of property rights. Il Poltico, Pavia, Itlia, v. 30, p. 816-829,
1965. [Reimpresso em Economic forces at work. Indianapolis: Liberty Fund, 1977].
_______________ & ALLEN, W.R. (1969). Exchange and Production, Theory in Use. Wadsworth
Publishing.
________________; DEMSETZ, H. (1972) Production, information costs, and economic organization.
American Economic Review, Princeton, v. 62, n. 5, p. 772-795,
ALVIM, A. (1987). Breves anotaes para uma teoria geral dos direitos reais. In: CAHALI, Yussef
Said. Posse e propriedade: doutrina e jurisprudncia. So Paulo: Editora Revista dos Tribunais.
ALVIM, A. (1987). Breves anotaes para uma teoria geral dos direitos reais. In: CAHALI, Yussef Said.
Posse e propriedade: doutrina e jurisprudncia. So Paulo: Editora Revista dos Tribunais.
ARIDA, P. (2005). A Pesquisa em Direito e Economia: em torno da historicidade da norma. In
ZYLBERSZTAJN, D. & SZTAJN, R. (orgs.), Direito e Economia. Rio de Janeiro, Elsevier (pp
60-73)
BARZEL, Y. (1997). Economic analysis of property rights. Cambridge: Cambridge University Press.
BELLEY, J.-G. (1995). Max Weber et la Thorie du Droit de Contrats, in Lascoumes, P. (dir.),
Lactualit de Max Weber pour la Sociologie du Droit. Paris, L.G.D.J. (pp 221-241).
BOBBIO, N. (1989). Teoria do Ordenamento Jurdico. So Paulo, Polis; Braslia, Editora UNB.
CALABRESI, G. & MELAMED, A.D. (1972). Property Rules, Liability Rules, and Inalienability: One
View of the Cathedral. In Harvard Law Review, 85 (pp 1089-1128).

16

COASE, R. H. (196) The Problem of Social Cost. Journal of Law e Economics, Chicago, v. 3, 1-44,
1961. [Reprinted in COASE, R. H. The firm, the market, and the law. Chicago: The University of
Chicago Press, 1988, pp 95-156].
COASE, R. H. (1988) The Firm, the Market, and the Law. Chicago: The University of Chicago Press.
COLE, D. & GROSSMAN, P. (2001). The Meaning of Property Rights: Law vs. Economics?.
COMMONS, J.R. (1959). Legal Foundations of Capitalism. Madison, The University of Wisconsin
Press (First published in 1924, by Macmillan Company)
COOTER, R. & ULEN, T. (1988). Law and Economics. USA, Harper Collins Publishers.
CORDEIRO, M.A. (1993). Direitos Reais. Lisboa: Lex Edies Jurdicas.
DE ALESSI, L. (1990). Development of the property rights approach. Journal of Institutional and
Theoretical Economics, Berlin, v. 146, pp 6-23. In: FIANI, R. (2003) A natureza
multidimensional dos direitos de propriedade e os custos de transao. Economia e Sociedade,
Campinas, v. 12, n. 2 (21), p. 185-203, jul./dez.
DEFFAINS, B. & KIRAT, T., eds. (2001). Law and Economics in Civil Law Countries. Elsevier
Science.
DEMSETZ, H. (1967). Toward a Theory of Property Rights. In American Economic Review, Vol 57, n.
2, Papers and Proceedings of Seventh-ninth Meeting of the American Economic Association (May,
1967), pp 347-359.
FARIA, J.E. & CAMPILONGO, C. (1991). A Sociologia Jurdica no Brasil. Porto Alegre, Fabris
Editor.
FARIA, J.E. (1993). Direito e Economia na Democratizao Brasileira. So Paulo, Malheiros.
FIANI, R. (2003) A natureza multidimensional dos direitos de propriedade e os custos de transao.
Economia e Sociedade, Campinas, v. 12, n. 2 (21), p. 185-203, jul./dez.
FREUND, J. (1987). Sociologia de Max Weber. Rio de Janeiro, Forense-Universitria.
GOMES, O. (1998). Direitos Reais. 13. ed. Forense: Rio de Janeiro.
JASPERS, K. (1977). Mtodo e Viso do Mundo em Weber, in Cohn, G. (org.), Sociologia: para ler os
clssicos. So Paulo, Livros Tcnicos e Cientficos.
KELSEN, H. (1990). Teoria Geral do Direito e do Estado. So Paulo, Martins Fontes; Braslia, Editora
UNB (1 edio em ingls, 1945).
KIRAT, T. & SERVERIN, E., orgs. (2000). Le Droit dans lAction conomique. Paris, CNRS.
KIRAT, T. (1999). Economie du Droit. Paris, La Dcouverte.
LIBECAP, Gary D. (1989) Contracting for property rights. Cambridge: Cambridge University Press,
1989.
MELLO, M.T.L. (2006). Direito e Economia em Weber. In Revista Direito GV, 2 (2): 45-65 (jul-dez).
MERRIL, T. & SMITH, H. (2001) What Happened to Property in Law and Economics? The Yale Law
Journal, Vol. 111: 357-398.
MONTEIRO, W. de B. (1998). Curso de Direito Civil: Direito das Coisas. 34 ed. atualizada. So
Paulo: Saraiva, v. 3.
NOBRE, M. (2003). Apontamentos sobre a pesquisa em Direito no Brasil. In Novos Estudos, n. 66
(145-154). CEBRAP, julho.
NORTH, D. (1993). Instituciones, Cambio Institucional y Desempeo Econmico. Mxico, Fondo de
Cultura. (1st edition in spanish) (Original edition in english, 1990 Institution, Institutional
Change and Economic Performance).
NORTH, D. (1992). Custos de Transao, Instituies e Desempenho Econmico. Rio de Janeiro,
Instituto Liberal.
17

PEREIRA, C.M. da S. (1999). Instituies de Direito Civil. 13 ed. Rio de Janeiro: Forense, v. 4.
PEREIRA, L.R. (2003). Direito das Coisas. 1 ed. atual. Campinas: Russel Editores, 2003. T. I.
PRETTO, A. (2001). New Property, New Wealth. In Deffains, B. & Kirat, T., eds, Law and Economics
in Civil Law Countries. Elsevier Science (pp125-140).
ROEMER, A. (1994). Introduccin al Anlisis Econmico del Derecho. Mxico, D.F., Fondo de
Cultura.
SWEDBERG, R. (2005). Max Weber e a Idia de Sociologia Econmica. Rio de Janeiro, Editora da
UFRJ (Coleo Economia e Sociedade, v. 5).
TEUBNER, G. (1986). Industrial Democracy Through Law? Social Functions of Law in Institutional
Innovations, in Daintith & Teubner (eds.), Contract and Organisation: Legal Analysis in the
Light of Economic and Social Theory. Berlin, Walter de Gruyter (pp 261-273).
UMBECK, J. (1997). Might Makes Rights: a theory of the formation and initial distribution of property
rights. In Pejovich, S., ed., The Economic Foundations of Property Rights Selected Readings,
E.Elgar Ed.
VENOSA, S.de S. (2002). Direito Civil: Direitos Reais. 2 ed. So Paulo: Atlas, v. 5.
WEBER, M. (1964). Economa y Sociedad. Mxico DF, Fondo de Cultura Econmica, 2 edio em
espanhol (1 edio alem, 1922).
WILLIAMSON, O.E. (2005). Por que Direito, Economia e Organizaes? In ZYLBERSZTAJN, D. &
SZTAJN, R., (orgs.), Direito e Economia. Rio de Janeiro, Elsevier (pp16-59).
WILLIAMSON, O. (1991). A comparison of alternative approaches to economic organization. Journal
of Institutional and Theoretical Economics, Berlin, v. 146, p. 61-71, 1990. [Reimpresso em
FURUBOTN, Eirik G., RICHTER, Rudolf (Ed.). The new institutional economics: a collection of
articles from the journal of institutional and theoretical economics. College Station, Texas: A & M
University Press, 1991].
ZYLBERSZTAJN, D. & SZTAJN, R., orgs. (2005). Direito e Economia. Rio de
Janeiro,Campus/Elsevier.

18