EconTalk |
Michael Heller and James Salzman on Mine!
Aug 23 2021

Mine-197x300.jpg Law professors Michael Heller and James Salzman talk about their book, Mine! with EconTalk host Russ Roberts. Heller and Salzman argue that ownership is trickier and more complicated than it looks. While we tend to think of something as either mine or not mine, there's often ambiguity and a continuum about who owns what. Salzman and Heller explore a wide and surprising range of property rights from everyday life. The conversation includes a discussion of the insights of Ronald Coase on the assignment of property rights when rights conflict.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Aug 24 2021 at 2:59am

Fascinating discussion. Thanks, Russ.

The fluidity of ownership over time — its evolution in response to resource scarcity, population change and technology — is quite on point.

I went ahead and listened to the Coase and R. Frank interviews as well. great stuff — I encourage listeners to listen to the Coase interview at 2x speed because he was speaking so slowly and surprisingly you can still catch every word perfectly at twice the speed.

I may be twisting common threads of interest across the three interviews here as I suggest that perhaps the point most eye-opening for me is why it’s so important to look at how questions — both economic or more focused on ownership — need to be studied from how they are actually resolved in the real world (or not resolved, maybe avoided) and yet this real-world-realm is precisely where it’s so difficult to understand or predict how negotiations take or might take place when finding solutions. Coase says just because it’s hard doesn’t mean you shouldn’t try.

Looking at the real world allows you to seek out many varied interests at play in a dispute over ownership. The simplicitly of the blackboard, in contrast, doesn’t allow the natural expansion of the dispute’s context to include the broader situation. I like the idea that people should be encouraged to work out solutions that honor the validity of competing narratives, each, perhaps, leaning on different principles of ownership.

I wanted to share in interesting ongoing dispute around parking on our street that may resonate with listeners, as it touches on several of the ownership principles Heller and Salzman underline.

We live on a short and narrow cultural de sac where parallel parking is possible only on one side between driveways and there is ample space at the end to fit about six cars side by side (depending on how one parks, of course). Driveways don’t coincide perfectly so there are uneven spaces where parking in front of a house could infringe on free access into and out of driveways on the other side. That’s the case opposite our driveway. If you park in front we can’t use our driveway.

Directly across from us stand two adjacent houses whose owners have claimed that parking in front of their homes is theirs and theirs alone. (They have also claimed that parking on both sides of the street was once the norm many years ago, before we moved in.)

The owner of the house at right once tried to ‘crazy’ me screaming to make her case, presuming I would not want to out-crazy the crazy. That’s wasn’t fun.

The single-owner of the house at left immediately across from us until recently had two cars for himself, a driveway and a garage but kept both cars on the street, with one in front of our house, not, incidentally, in front of his driveway, which is clear of all cars….

While normal by today’s standard, our cars are larger than the average car was 35 years ago when the street was built. We live in Italy where the average Fiat 500 or Fiat Panda used to be the choices one had.) Incidentally, our neighbor’s cars are a bit smaller than ours but so is his driveway, so it’s easier for him not to use his driveway although there are no physical impediments in doing so (it might take two minutes to drive it in towards his garage or just into his driveway). He once argued he could leave a little half-space in front of our driveway to ensure we could manage to enter and exit within a couple of minutes but you can’t guarantee someone else, perhaps in the next house to the left, wouldn’t fill the tooth-gap. Our wonderful neighbors have both also on occasion told other people visiting that the street was the private property of the residents, which is clearly not the case.

How many principles of ownership are at work here?

Personally, I can’t stand the situation and choose to steer clear as much as possible. While I speak Italian fluently, I am an American — from New Jersey, too, where ‘thems are fighting’ words’ is imprinted in my mind — and I struggle to find the right words to negotiate nicely with their aggressive nature. I throw my hands up and have been doing so for a decade!

[Minor typos corrected for clarity–Econlib Ed.]

Jim Ellison
Aug 28 2021 at 1:40pm

The seagulls from Finding Nemo came to mind immediately when I saw the title of this post.

Anne Leroux
Aug 29 2021 at 10:29am

Grievances…the 7th claim to ownership..

First Nations

Japanese internment camp descendats

Black people in Canada, born in Jamaica, claiming priviledges, rennumeration,, job preferences, because of slavery in the US in the 1600’s and 1700’s

Sep 3 2021 at 11:32am

I think these grievances you’re describing fall under a combination of ‘first’, ‘family’, and ‘labor’

First nations: my ancestors (family) owned this land for generations (first) before Europeans came and took it.

Slaves:  my ancestors (family) were enslaved, a system enforced by governments that are still here (e.g. US government) and those slaves were never paid for the work they did (labor).

Todd D Mora
Aug 30 2021 at 1:18pm

Russ: “I like cats more than dogs.”

This is going to rattle a large portion of the Econ Talk audience, me included.  🙂


Sep 3 2021 at 12:13am

Perhaps I missed it, or perhaps I’m not creative enough in my thinking, and I was hoping Russ would ask, but- what about taxes?

What ownership rule of the six accounts for the forced transfer of ownership from a citizen to a government entity?  I guess it is simply “possession” if taxes are considered a voluntary passage of property (money) to the government in exchange for avoiding prison?  Do the services provided (defense, rule of law, roads🙄) constitute a “labor” that that justifies the transfer of a citizens’ labor (in the form of wages) to a government.

hopefully I’m not sounding like a black and white “taxation is theft”, but a straight up theft would actually be easier to understand in the Mine! framework- which I loved, great episode!

Sep 3 2021 at 11:22am

Does theft of property fit into one of the 6 stories about ownership?  Or rather, the rationalization made by the thief?  Does that just fall under ‘possession’ or is there another story there – “It should be mine because I want it.”

george m weinberg
Sep 5 2021 at 2:51pm

There was a lot that struck me as strange about the airplane seat story.

First off, the idea that people are trying to claim “extra” space by reclining or forbidding the person in front from reclining seems fundamentally incorrect. People have the same amount of space if everyone reclines than if no one reclines, and presumably no one is arguing that he has the right to recline but the person in front of him does not.

Second, I don’t see how it’s even remotely contestable that seats have a recline option means you are allowed to use it. Certainly it would be cheaper and easier to build seats that could not recline.

Finally I got the impression the authors thought airline companies are somehow ripping people off by cramming in them in and suggesting if they want more room they should spring for premium economy tickets.What’s wrong with that? Airlines are competitive, it’s only because passengers are crammd in that air travel is as cheap as it is. People who want more room are free to purchase it. It seems some people want extra room, but also somehow resent the idea that people who don;t need as much room might be able to buy cheaper tickets.

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TimePodcast Episode Highlights

Intro. [Recording date: August 2, 2021.]

Russ Roberts: Today is August 2nd, 2021, and my guests are James Salzman, the Donald Bren Distinguished Professor of Environmental Law, with joint appointments at the UCLA School of Law and the Bren School of Environmental Science and Management at the University of California, Santa Barbara; and Michael Heller, who is Vice Dean and the Lawrence Wayne Professor at Columbia Law School. Together, they have written Mine!--that's with an exclamation point: Mine!: How the Hidden Rules of Ownership Control Our Lives. Jim, Michael, welcome to EconTalk.

Michael Heller: Thank you.

James Salzman: It's great to be here.


Russ Roberts: So, this is a book that covers a lot of EconTalk favorite topics. Property rights is at the heart of this book. But, what is fun about the book is it is a exploration of the subtlety of property rights. I think most human beings think about the historical nature of property rights: something's either mine or it's not. And, that's like my house, as long as I don't have a mortgage. But, we tend to think of property rights is on or off: one, zero. And, what your book does beautifully is explore the rich nuance and subtlety of property rights, currently and in history.

I want to start with a seemingly peculiar example, which is early on your book, which I loved, which is the airline seat. Michael, what is the story of the airline seat?

Michael Heller: Well, actually, it was the genesis of this book, as well. We were flying, and this actually happened to Jim. The person in front leaned back. Jim was actually preparing a talk to give, as he does a lot, and someone leaned her seat right back into Jim's lap. Now, that raised the question, like: whose space is that, the space behind the seat? Does it belong to the person in front with the recline button, or does it belong to the person in the back, the person who is trying to get some work done?

And what we realized is that those conflicts come up absolutely all the time, not just in airplane seats, but land and radio spectrum, where you have different people who are shouting, 'Mine.' So, with the airplane seat, the person in front is saying, 'It's mine, because that space is attached to something mine, attached to the back of the seat, the button controls the recline.' What we've realized is that what the person in front is doing is, she's claiming mine through one of the oldest principles of ownership, which is attachment.

And Jim, sitting there in the back, is saying, 'No, it's mine, because I had it first, first in time, and I possess it. I'm actually physically using the space.' Possession is nine tenths of the law.

So, we realized with that very tiny interaction, one that's familiar to all of us, having somebody lean into your lap, that tiny interaction involves three of what turned out to be just six simple stories that everyone uses to claim everything in the world. And that one is attachment, possession, and first.

James Salzman: Of course, you might ask, so, why are these fights breaking out? Because it turns out, there are a lot of fights over who controls this wedge of space. As Michael said, the fight really is over ambiguity. You've got these competing stories: who owns it?

Now, there are a few really interesting things that come out of this. The first is why are these fights breaking out now? Because, they didn't use to break out. Right?

So, there are at least three things that are going on here.

First of all, we're using the space differently than we used to use it. Before, we used to have it for rubber chicken. Now we use it as a workspace, we use it as our entertainment. So, the space on the tray, actually, is valuable; it's value has gone up.

Second thing is people are larger, so the space is compacted.

The third is induced scarcity. So, it turns out that the pitch, the distance between seats on an airline--that's the term for it--has shrunk. And, everyone who flies knows that. On Frontier and Spirit, basically, your knees are in your abdomen, just when you sit down. But, the pitch has gone from 32, 33 inches, excuse me, to about 26, 27 inches on the budget airlines today.

So, why are they doing this? Every inch saved of pitch is the equivalent of an extra row for the airline. So, it's real money. So, the airline is actually creating this problem by--in econ-talk, it's taking a valuable space, and is basically making it scarce, more competitive.

So, why the fights? The airline could say, you have the right to recline. They could say, you have to ask. Or, you can't recline. They don't.

And, one of the things we point out in the book is this, actually, is a very clever ownership engineering strategy. We call it strategic or deliberate ambiguity. And it happens a lot. The beauty for the airlines is the passengers get angry at each other, instead of getting angry the airline, who really is causing the problem here.

So, the airline creates this uncomfortable situation, people try to work it out. They rely on customs, norms, good manners to do so, and it usually works, though not always. Or, they simply say, 'Forget it. I'm going to go to economy plus,' or 'I'm going to go to business class.' And, obviously, it's not just airline seats. Everyone knows the unspoken jostling over the armrest with elbows, or overhead space.


Russ Roberts: Yeah, these are examples. I have to say, first off, that as someone who towers over many of his fellow human beings at five foot six and a half, the smaller pitch is one of the rare examples where I'm--it's not so bad for me. It's not in my abdomen, it's only in whatever, my pancreas. But, it's a strange example, and a fascinating one, because, first of all, as you point out, it's a private space. This is not a government situation, where I expect the government to come in and fix this. Although, it could. If there were enough violence involved, we could imagine a regulation that just that decided these questions.

But instead, what usually happens is there's a norm that develops, and through most of my lifetime--I think I'm older than both of you--through most of my lifetime, the norm was: you can recline your seat, because there's a button there, whether--because there's a button or not, and you point out the button seems to encourage the reclining. You can recline your seat, by definition--it is about a five-year-old, in my experience, seven-year-old phenomenon, where people resent the reclining in a way they did. And it's for exactly the reasons you said: the space has gotten smaller, and sometimes you can't even physically open your laptop all the way and do your work.

So, that phenomenon, which relatively new, is a common phenomenon, has made it more challenging.

Often, what happens in these situations is norms emerge anew. They change; and I think they have changed. I don't recline my seat, generally, as I once did, because I feel like it's considered gauche, and it wasn't before.

But, I want to disagree with you a little bit, and I'll let you react, and then see if you agree or want to counter. I don't think it's so much in the airlines' interest to have people fighting on their flights. The ambiguity--it has a certain advantage. It does allow them not to be the bad person who says, 'You can't recline,' or, 'You may recline.' Both of those are unattractive. Right? But, it's also not attractive to get on a flight where you don't know what the rules are.

So, an airline that says, 'Our seats don't recline, but we give you more leg room to start with,' or, 'Our seats don't recline, but we give you phenomenal non-rubber chicken for the tray when you're not using your laptop,'--usually, private entities have an incentive to avoid these ambiguities. So, I don't think--I think they were caught by surprise, to some extent, and we'll see if--I think it'll change. Your thoughts, Jim.

James Salzman: Yeah. So, a few points. So, we do a lot of public speaking on this. And generally, using Zoom, we have a poll feature. We ask people, should there be a Right to recline or a right to defend your knees? And it is extraordinary, because every time we do it, it's 50-50. At most, it's 60-40 or 40-60. It's incredible. People look at each other with incredulity: How can you possibly disagree? So, what's fascinating is that people hold these diametrically opposed views very strongly. They each are seizing their own story.

You're certainly right that there's a downside to the airlines. I guess where I would push back is at the upside, which is having more seats to sell. That seems overwhelming. And, they don't blame the airlines. Right? So, people go in knowing, 'Ah, what a hassle. Someone may lean into my seat. Maybe I should buy economy plus.' Now, interestingly, FAA [Federal Aviation Administration], in 2018 deliberately chose not to get involved in this issue. They could have. If more fights break out, as you said, they very well might. Michael, anything you want to add?

Michael Heller: So, this has been--the norm evolution here is, in fact, happening. So, Delta, for example, recently cut the amount that the seats recline from four inches down to two. I think in part in response to exactly the kinds of countervailing pressures that you're suggesting. Some airlines have started to do what's called pre-clining the seats, which is setting them at a certain fixed angle, which also resolves the issue, but it means the airlines lose the surplus from being able to sell that space twice on every seat in every flight.

The strategic ambiguity value for the airlines, we think has actually quite a substantial economic value for them: that, most people feel like they're getting something extra. They know they're going to be uncomfortable, but they're getting some little bit extra from either being able to recline, or having that little space that's illusory space at the beginning. So, long as the ire is directed at other passengers, so long as airlines can rely on these background norms of politeness and good manners, that that lets them leverage the ambiguity for their benefit. And, that seems to be what's driving the phenomenon so far.


Russ Roberts: Of course, the other thing which--it's a subtlety that you didn't mention, and I don't think it's in the book either--is that a lot of times ambiguity is socially valuable. A short person sitting behind a tall person, or a would-be recliner, probably doesn't mind so much. I gave the example of me. It's a little like non-assigned seats at the movies. We've increasingly moved to assigned seats in movies, and you mention that.

One of the advantages of non-assigned seats, again, at five foot six and a half, I get behind a 5'11', or a six foot four person in my assigned seat, I'm in trouble. It would be easy to move over one or two in a situation where we can work it out informally. Of course, as you point out, sometimes you could say to someone, 'Can I reclaim my seat? I'll buy you a drink.' There are other ways--Coasean--we'll talk about Coase, I suspect, later.

To me, Ronald Coase hangs over a good chunk of this book, and you do discuss him; and I want to add, in case we don't get to it, one of the rare cases where you understand, actually, what Ronald Coase meant, which is usually not the case, which--so I just want to salute you. It's a pet peeve of this program. We had Ronald Coase as a guest. I think he was 102. And he agreed with me that many people have misunderstood what he meant in that article. Anyway. Sorry. Michael, go ahead.

Michael Heller: So, yeah. So, this is actually news you can use for your listeners, which is: If you are being squished by someone in front, it turns out that if you--there's an individual solution separate from a regulatory solution. The individual solution to being squished is not, it might surprise you, to offer $20 bucks to the person in front. They often will get offended.

Russ Roberts: Yeah, sure.

Michael Heller: That does violate norms. [crosstalk 00:12:22]. It also doesn't work to say, 'Just please don't lean your seat back.' They'll say, 'Well, it's my right to. It's mine.'

Russ Roberts: Yeah.

Michael Heller: What does turn out to work three quarters of the time, is if you offer to buy a drink or a snack, for the person in front of you. They will take the drink or the snack; you've sort of recognized their story about mine, you've recognized attachment, and you've honored it, and you've sort of brought them into community with you. So, that's actually quite a powerful way and a sort of Coasean bargain to solve the people leaning into your lap solution, separate from any external regulatory solution.

There is a deeper point here, which actually goes to your--the thrust of your question so far, Russ, which is that property rights--ownership--is never static. People feel like it's a natural, a given, a timeless answer. It's mine, or it's not mine. But, you characterize it as the sort of on/off switch view of property. It's actually always, and in this case, much more fluid and changing, and it changes, specifically, when you have more resource scarcity.

So, you mentioned Coase. Another thread, I'm sure, in your program is Harold Demsetz and one of the original theories of the economics of property rights: that they develop and emerge in the face of either increasing population, or increasing scarcity, or technological change. And the airline seat is basically a version of all of those: bigger people and being squished together.

So, the same phenomenon that you have for your genetic data, for your clickstream online, for an electromagnetic spectrum, for space for satellites--any time you have more scarcity, you have more pressure on the existing stories of ownership. And they are just that: they're only stories in conflict with each other, that at some given time might say, 'Attachment, the button controls,' or might say, 'No, my knees control.'

But, that story changes as scarcity increases. And what we are seeing with airline seats is exactly that example of scarcity increasing.


Russ Roberts: I'm glad you mentioned Harold Demsetz. Harold, one of my favorite economists, was a colleague of mine when I was at UCLA [University of California, Los Angeles], and he doesn't get mentioned enough on this program. So, I'm glad you brought him up. But, he wrote some really fascinating papers on the origins of property rights, or at least speculating about them. I'm curious in your poll of what people think is the, quote, "Who has the right?": Does it differ by age? Have you noticed?

Michael Heller: Our sense--we actually haven't controlled for age. I think, actually, even more salient is gender. So, we think that there is some correlation between women thinking they can recline, and men being impatient with that. We are pretty confident that there is a correlation with height, but we're not sure about age. We can guess. I'm trying to think if we've had--we've given this talk to older audiences, and I think they tend to be a more pro-recline. We might get up to as high as 60-40 on recline for an older audience.

Russ Roberts: I would think so.

James Salzman: What's interesting is we've never gotten more than 60. And so, there really is genuine disagreement, no matter who the audience is.

Russ Roberts: You know, it's one of these examples, though, I think, where if you're born with the norm, it's very different than if it's evolved or changed during your lifetime. Right? Older people are shocked, I think, still, when people answer their cellphone at the table or do things--cellphone etiquette. There's a lot of different cellphone etiquette questions. But, if you grew up with cellphones, I think you have a different etiquette than if it--because I think for older people, it's like another phone. You would never get up in the middle of a dinner to go answer your phone. Well, you might. I don't know. Anyway.

James Salzman: But those kinds of etiquette [crosstalk 00:16:03]. Yeah, go ahead, Michael. I was going to say, you don't mind if I text while we're talking, do you?

Russ Roberts: Yeah, no, no. It's fine, it's fine. In fact, listeners used to get angry at me. I used to take notes during episodes. I would type: like, a reference, say, to Harold Demsetz: I put--'Oh, I'll put a reference Harold Demsetz in the notes.' People thought that was rude, because you could hear the clicking. I thought it was kind of flattering. I'm noting something the guest said? But, more than one person, not 100, but more than one person said that's rude. I decided it's actually distracting to me in terms of my job as a host, so I've stopped doing that, and I rely on other methods, including some helpful people who work with me. But--sorry, Michael, you were going to say something.

James Salzman: These norms are so subtle. Like, the etiquette norms of the cell phone use--but people very quickly come to naturalize them to feel like it must be this way, it's always been this way. If you do it any other way, it's just rude.

And those same feelings drive much of what we think about ownership. So, one of, actually, the big challenges for us as law professors is that--is teaching our students the extent to which law is overrated. 99.99% of ownership debates happen, are resolved, outside of the law. And, lawyers, in particular, but laypeople as well, often believe that law matters. That there's an answer, and it's written down somewhere. 'If we can just get the answer, we can do that.'

And that isn't true.

It isn't true for the airplane seats. It isn't true for most of the conflicts that you have going--when someone cuts in front of you in line, what's the answer? Well, there's a whole, competing stories about mine that we can get into, but it is just that. People are using one of those six very simple stories to basically get their way about some resource conflict. And, then later, you naturalize it as etiquette, or norms, or politeness, or the way things are done around here.


Russ Roberts: Yeah. I'm living in Jerusalem now. I moved here about six weeks ago, and we're trying to rent an apartment; and our real estate agent--which normally in America, you would not necessarily use a real estate agent to rent an apartment, but here, it's very common, and it's also common to have a lawyer to look at the contract, which is also very uncommon in America.

James Salzman: Hmm.

Russ Roberts: And, my real estate agent will say things--sometimes they'll say things like, 'Oh, well, you don't have to worry about that, because that's in the contract.' And, I'm thinking, 'Mmh, you don't want to use--' The whole idea of the contract, of what you call the law, is that you don't want to use it, because it's very costly; and you would much rather rely on norms that you're familiar with. But we're not familiar with the norms. So, we're kind of in an interesting intercultural situation moving to a new country, where the norms are very different. Yeah, Michael.

Michael Heller: So, that's been one of our surprising findings in writing about Mine!, is that many of the norms of ownership turn out to have regional accents--that you think it must be the case that it works everywhere in this way.

And it's true, like in Chicago, that if you dig out your parking space after a snowstorm and put a chair in the space, if somebody else parks in that parking space, their car is going to be defaced. And that's true in Boston.

But, where I am, here in New York City, that same act of possession, that same act of ownership, that same language that may seem universal or natural to someone from Chicago or Boston, applies not at all. In New York City, after a snowstorm, you will lose both the parking space and the car, if you've dug it out and left the space there. So, it is absolutely the case that--

Russ Roberts: And, the chair--

Michael Heller: You lose the chair.

Russ Roberts: Or the car.

Michael Heller: Or the car. New York is a tricky place. But, you would think that those norms are everywhere, but it turns out that the norms of renting spaces, buying spaces might be lawyered, might not be. The language of possession is one that happens almost completely outside of the law, and it's very subtle, but it's also very regional.

James Salzman: The Boston part of the story is particularly interesting, because the norms are shifting.

So, it used to be the case in South Boston, that basically a chair, or a Fruit Loop box, or a ironing board--any kind of object--saved a spot. People actually knew whose spot it was. The area has been gentrified; and so the story is basically folks moving in from New York in other places, local businesses are moving in, also, and the parking spaces are, as with the airplane seat, more valuable. Right? They're scarce. There are more people going in, and the people going in, either do not know the norm or do not respect the norm. And so, there has been a back and forth.

So, as Michael said, cars were getting keyed, a few windshields were broken. And so, the Mayor, Marty Walsh, now Secretary of Labor, said, 'Okay, you get 24 hours.' Right? You dig out the spot, you get 24 hours. But that's--the police don't enforce it. And so, basically, it's a case of norms in transition.

So, Elinor Ostrom, who I'm sure you talk about a lot--

Russ Roberts: Yeah, we have--

James Salzman: in your program, as well--this is classic Ostrom--which is: the closed community with reciprocity of sanction, that's all breaking apart in these areas that are gentrifying.


Russ Roberts: I just want to mention--Michael introduced the idea that we sometimes rely on the law without understanding or appreciating that it's ambiguous, and sometimes enforced more effectively, some of the provisions of law are enforced more effectively by trust, or other types of norms that emerge. I want to make a distinction that we've talked about in the program sometimes, which is between law and legislation. Law, meaning norms, expectations. Legislation meaning codified.

And it's not quite your point, but I think it's an interesting way to remember these differences.

I also want to invoke the Chesterton Fence, which is this idea that when you see a fence there, it's like, 'Obviously, it doesn't have any purpose. Let's get rid of it. Let's tear it down.' A lot of times, the norms that we use to resolve disputes we might otherwise have are extremely important, solve lots of problems that wouldn't be solved by either legislation or contractual agreement.

So, I wanted to just add that, and add that we could spend the whole time just on the chair, or the seat. All just seen examples.

And finally, I do want to add, there's a wonderful essay on our site by the late Fred McChesney on the economics and the norms around the Chicago and other cities, using a chair after you've shoveled out a space. We'll put a link up to that. Someone else want to comment?

Michael Heller: So, McChesney, Richard Epstein, there's been--actually, there's a surprisingly large economic literature, Carol Rose, on parking chairs. Possibly because Chicago, where the U. of C. [University of Chicago] is located, has this very distinctive parking-chair culture. As does Boston, home of some other universities.

But, it is such a good illustration of this point that you're making of the over-emphasis on what you're calling legislation, of what lawyers would call the formal law, which is really a very tiny subset of how almost all ownership disputes are solved.

That's really the--there's one core to our book, it's really making people aware that the language of ownership is very predictable. There are these very few simple stories. We've talked about attachment, and possession, and first, so far--

Russ Roberts: Give us the rest of them, just to make sure we don't miss that. So, these are the narratives and logic, really, of various regimes of property rights, right?

Michael Heller: Yeah. This is really the contribution that we can make to your economics listeners, who think of mine, often, as an on/off switch. And what we do in the book is--and each of the chapters takes one of these--is laid out the six simple stories.

So, attachment is: My home is my castle. Like, what's attached to that deed of paper? How much resource control do you have when you say, 'I control this two dimensional plane?' What else do I get? Attachment.

First in Time. First come, first served. This is how kids decide who gets the swing on the playground, that's how geosynchronous satellites are--space is claimed in orbit. It's used all the time. Who gets first. Firstborn son, historically, for inheritance. So, First in Time is the second one.

Possession. Possession is nine tenths of the law. It's mine because I'm holding on to it. That's the parking chair example, right? Possession is this very powerful language that we all speak, but we don't realize that we're speaking all day long, every day.

So, attachment, first, and possession are three.

Labor is the fourth. It's mine because I worked for it. You reap what you sow. This one is the basis for our intuitions about intellectual property, about patents, about copyrights, why we reward those that--innovative effort. It's the emotional feeling behind it: It's mine because I worked for it.

The fifth one is self-ownership. It's mine because it comes from my body. So, your genetic data, why is that yours? Does it belong to you or the gene company?

And the sixth and final one is family. Birth and death, marriage and divorce, those are the moments when, really, a lot of wealth in our country moves around. So, there's a notion that the meek shall inherit the earth, but the reality under American law is that the meek actually get very little.

So, that's it. Attachment, First, and Possession--that was the airline seat. Labor, Self-Ownership, and Family.

That's the only stories that people use and it's all the stories that people use to claim every resource in the world.

And what you usually will have is someone's--you might be claiming attachment--the button controls the resource--and I'm claiming first. Or, I'm claiming my labor is what creates this genetic database, that's why I control that genetic information, and you say, 'No, no, no. The data comes from me, it's my individuality.' So, that would be labor versus self-ownership. All ownership debates come down to a clash among those six stories.

James Salzman: As we're thinking across to your listeners, this is--if you know the movie The Matrix, there's a scene where suddenly Neo sees the world as these streaming ones and zeros. These six stories allow you to do that. I promise you, if you look at the front page of your newspaper, you will find some kind of ownership complex, and once you think about the six stories, you can dissect it. You can figure out: what are the competing claims here? It really allows you to look the world around you differently, much as the world looks different when you start focusing on incentives. We think this is just as powerful a way.

And the other point that I think is interesting is that as far as we can tell, this is it. When we give these talk, people say, 'Well, what about tribes in Papua New Guinea?' Or, 'What about Israelis? What about Canadians? What about so-and-so?' And as far as we can tell, they're all relying on the same six stories, but they emphasize some of the stories differently than others. So, in some communal groups, family, or group, is much more important than labor, for example. But, as far as we can tell, those are the six stories. That's it.


Russ Roberts: Well, I think it's important--I hate to be so bold as to add something, try to add something to your six stories, but I--

James Salzman: Great.

Russ Roberts: I'm not going to add a seventh. Don't worry.

James Salzman: Okay.

Russ Roberts: It's like, 'Oh, you guys have missed it.' [crosstalk 00:27:40]. But, I think there's something else to add, which didn't strike me until we had our conversation, which--so one value of the six: It's a taxonomy. It's a way to organize your thinking; it's a way to notice things you might not have noticed.

But, I think the other thing is a little more hidden, which is that it comes back to what we started talking about, which is I think we have this naive idea of, 'It's mine.' 'What do you mean? It's mine.'

What the six stories point out in many of the examples, and we'll get some of them, maybe--we might just stick with the seat. But, what the examples point out is that what makes life interesting and challenging is that many times, the stories conflict. There's tension between these. And, of course, the person who has got the financial or emotional stake in one of the stories thinks, 'Well, what do you mean? There's only one story. It's mine, because I reap what I sow. I worked.' Or, 'It's in my house. How dare you tell me--?' Or, 'It's on my phone. I bought that book on my Kindle, and therefore it's mine.' But, of course, Amazon, as you point out, they can take it away from you, which is--'No, no, no, they can't. It's mine.' Actually, they can. Although I want to say, I like my Kindle. I enjoy--

Michael Heller: Yeah, the Kindle is a great example. So, one of the challenges about thinking of ownership today, and this is one of the stories--it was actually one of the threads of our conversation so far today--is that ownership stories change as you have more scarcity and competition. And another way that ownership stories change is as we move online.

So, you talked briefly about movie theater seats. And, we're seeing a shift there, as our cellphone technology changes, it becomes cheaper to create property rights in individual seats. So, we're beginning to move to individual seat ownership, and 'This is my seat in the theater,' rather than first come, first served--a different method for assigning ownership or control over the seat for that particular movie.

But that's also true as we move to a lot of our lives online. So, we have this very physical notion of possession. Possession is nine-tenths of the law, a notion that actually goes back to the earliest legal systems four or five thousand years ago, that already had in it this notion of possession as giving rise to ownership.

But, when you move online, that's just not true anymore. And Amazon and Apple, and other big tech giants, have figured that out. What they realized is that you, as a consumer, bring your physical notions of ownership to your online life.

It turns out that today, about 85% of people believe--this is a recent poll at the University of Pennsylvania--85% of people believe that owning--uh, downloading--a book onto your Kindle is the same as buying a physical copy of the book. And, it's not. Amazon and Apple can, and have actually deleted books and movies right off of people's devices. They can't come into your home and take the book away, but they can simply delete it without compensation from your device. They've retained that right in the agreement that you had with them when you downloaded it.

And what that means is that online, possession is much closer to 1/10th of the law, not 9/10ths. And that difference between what you feel like you own and what you actually own is very economically valuable for Amazon and Apple. Just like strategic ambiguity is profitable for the airlines, that ambiguity is profitable for Amazon and Apple. And what it means is they earn an extra premium on every download, because you think that you own something different from what you actually out, and what you actually on is different and less--

James Salzman: I just want to--

Michael Heller: That's one of the new stories of possession.

James Salzman: So, Russ, to give another example, think about your smartphone. Right? What do you actually own in your smartphone? It turns out, you own a plastic brick. Right? Because, what's valuable about your smartphone? The operating system. You don't own that. The data, you don't actually own the data--your data--that runs through the phone. What you are doing, essentially, is licensing access to a series of ones and zeros. It's a totally different way of thinking about property that--you know, excuse me, we're hardwired to think about. It's a fundamental change as our lives and our assets go more and more online and become digits. Literally. Just intangible digits.

Russ Roberts: And of course, I can--in some sense, I can resell my phone, somewhat akin to the way I can resell my car, if I'm not leasing it.

But, at the same time, there may be restrictions on what the phone can do after I resell it that I don't imagine, but might be there. And I might be willing to pay a premium to avoid those restrictions. Of course, there are many examples like that in the digital world, where--and in the real world--where your property rights expand or contract, depending on which version--whether you got the deluxe or the less fancy version--whether you paid a premium for it or not.


Russ Roberts: Let's talk a little bit about foraging, because I thought that was so interesting. Normally, you would think whatever is--we're going back to the--I think Michael alluded to it--this two-dimensional plane of my property. So, I own a house, say--I don't now, but if I owned a house--normally, I would say, 'Well, whatever is in my backyard is mine, and I can do with it whatever I want, because it's my backyard.' We've talked on the program before: You actually can't do whatever you want with your property. You can't build a little hut in the back and rent it out to people: there could be zoning restrictions and all kinds of things that--your home is not your castle. It's somebody else's castle with you. Or, there's limitations on what you could do with it.

But, the foraging, which is a strange--a little bit old-fashioned English word for looking around for stuff you could eat, mostly--that that used to be different than the way it is done now. So, talk about that. Whoever wants to go first, talk about how foraging, looking for wild mushrooms or fruit or game, has changed over time. And you might want to bring in the Wild West, which is an example economists love. And barbed wire. So, you can do that, too. Go ahead.

Michael Heller: So, if you go back to the earliest days of the American settlement, this sort of notion that we have now, the no-trespassing version of America, actually wasn't the law at all. It wasn't the way America was settled. Back in the day, everybody had the right to roam over their neighbor's land. They could hunt, they could pick blueberries, they could dig clams, they could basically provide sustenance for themselves using their neighbor's land. That was true in every original state; and it was true in all 50 states. As the states entered the union, initially, we had actually a right to roam.

Now, there were exceptions to that. An owner could turn the forager into a trespasser. You weren't trespassing--you weren't breaking the law when you came into someone's land. You had the right to be there.

So, the way that they would change the entitlement--basically, say, 'I, the landowner, can keep you out; you can't forage in my land,' is if they enclosed it, they put a fence around it; if they posted it with signs that said 'No Trespassing.' Actually, the sign itself turned the forager into the trespasser. That's why there's very detailed rules about the size and distance apart those signs have to be, because the sign itself is what actually shifts the property right.

And, then, third: If the land was cultivated or urban. So, you can't just forage in somebody's backyard in a city. That was true back in colonial days and true today.

But, the history of ownership in America was--put a lot more premium on, basically, using the resources productively.

So, people who were laboring won out over people who were claiming the attachment principle. 'It's mine because it's attached to my land,' they lost to people who possessed and labored to secure game. Probably because protein was scarce, and the people who were actually going out there and tracking down the deer, they were the ones who basically made the laws, and they were the ones who were rewarded.

Now, that's changed. That changed, in part, because of the invention of barbed wire in the 1860s. The images that you have of those huge cattle drives going across the American West, that was true only for a very small number of years. Those cattle drives were mostly covering land that was owned by private homesteaders, who had just recently kicked out the Native Americans. So, the homesteaders didn't have any way to stop the cattle. So, their attachment rights did not include the right to not have the cattle trample over their land.

And, barbed wire, when it was invented in the 1860s, transformed the American West. It made it possible for homesteaders to have a line that they could defend against cattle. Cattle would get injured by their brushes against barbed wire. And it was that moment that actually changed America, that made the attachment version, the no trespassing version, that now seems so natural. But, what it means to own land in America came into being really around the rise, substantially, of barbed wire.

And, then state laws have now followed. Now, in about half the states, you actually don't have the right to forage over unposted, unenclosed land.

So, that's been another story of the evolution of property rights. They are mediated substantially by the invention of barbed wire. Jim?

James Salzman: Yeah. So, let me give you a modern example, the talk about the attachment principle. So, the intuition of the attachment principle goes way back. Roman law had this idea that you owned, from Heaven to Hell, this sort of, you know, cylinder--

Russ Roberts: Three-dimensional--

James Salzman: three-dimensional--exactly, thank you--that goes from your two-dimensional land. And, it seems silly now, but in the early 20th century, a number of lawsuits were brought against airlines for trespass. They said, 'Hey, you're flying over my land. You have to pay me.' Fortunately, the court said, 'No, no, no. Air rights end at a certain point.'

Okay. Good. We have an airline industry.

What about drones? Right. So, pizza delivery services, FedEx [Federal Express], DHL [Dalsey, Hillblom, and Lynn], they see a future where drones are delivering goods. The question is: When a drone flies over your backyard, not at 10,000 feet but at 100 feet or 150 feet, is that the same thing as basically a delivery person clambering over your fence and running along with a box and jumping over the next fence?

The government has said how high--has set how high a drone can fly. It's silent about how low a drone can fly. There's a story in our book about a guy who basically shoots a drone out of the sky over his backyard, and he says, 'Look, you're trespassing.' He actually goes to court, and he wins. He actually raised some money. He sold his shirts that said, hashtag, 'Drone Slayer.' So, he had his own merch [merchandise] that went along with this.

But, this is an issue where there's real money at stake here. And, one of the interesting things that Michael was talking about is you can now lower transaction costs. So, rather than the on off/switch--either you can go over people's property or you can't--with a drone, one could imagine microtransactions, where you say, 'Sure, you can fly over my property, but you have to pay me a penny, every time you go over.' It would GPS [Global Positioning System]; that actually can be tracked at low cost. I suspect, actually, that may be where we end up once this all shakes out.

Russ Roberts: The other example is down to Hell, because the fracking revolution which took place in the United States, did not take place in many other countries, because the government owns the space below the ground. Whereas in America, for whatever reason--I think you talk about it a little bit with the history of it--but, in America, I think in every state?--perhaps; it's a Federal thing--you own the resources under your house. If you find gold or oil--black gold--it's yours. And, there's issues of common property, because oil and water tend to pool across people's--not just below one's own house, but across multiple houses which adds some complications we may get to. But, that's a very, very--that seemingly, like, 'Oh, that's interesting, I guess you could have it that way' turns out to have made an enormous difference in the world. Because otherwise, I don't think we'd have had the fracking explosion we had the United States.

James Salzman: Yes. It's interesting. It's State law, not Federal law. But, basically, it's a classic argument for private property is: if it's yours, you'll invest in it--

Russ Roberts: You take care of it--

James Salzman: Exactly--

Russ Roberts: Both--

James Salzman: It's the implication, Tragedy of the Commons.

One of the really interesting things you get into, though, with so-called fugitive resources--like water, like oil--is they move.

And so, imagine that we're neighbors, Russ, you and I, and you've got a well, and I've got a well, and I bring in a big diesel pump, because I want a lot more water to grow marijuana--which you can now do in California. One day, your well does dry. And your intuition is, 'Hey, you took my water.'

And the law--it varies state to state, but in a number of states basically, it's too bad. Right? If the water moves, it leaves, like a wild animal leaves. It's not yours anymore.

Now, you think about it, and of course, this creates a terrible incentive, which is: You're going to say, 'Okay, I've got to get my pump, and get my water out before my neighbor does,' and you get a Tragedy of the Commons dynamic.


Russ Roberts: I think it's always an issue of transactions costs in there, monitoring. In some of these cases, I assume, there's not as much risk that you're going to pump all the water out, because you're probably not running a farm off your water: you're just drinking and showering and doing the normal things. Whereas if it's oil, we better fix that, because it's very valuable, and it's worth monitoring how much comes from where. You talk, in the book, about unitization as a way to solve that problem. If you want to talk about that, Michael? or, something else. Go ahead.

Michael Heller: Well, just briefly. So, one of the areas that we're getting into, and one of the sort of threads of our book is making people aware, not just that ownership is always a choice--'It's mine'--not just 'It's mine,' or 'not mine.' It's: which story are we going to tell? Each of those stories are then implemented using some technology.

So, ownership, really, is the way that we socially engineer who gets what and why in our society. And that form of engineering isn't static. Barbed wire changed the American West. That was a physical engineering. But, it turns out, we also have ownership engineering that we use all the time.

So, my parents, for example--when I was a kid, my brothers and I used to fight all the time about who would get the biggest slice of pie for dessert. And, they wanted to use their ownership of the pie to eliminate that dispute, and they engineered it in a very smart way. They said, 'You as the oldest, Michael, you cut, but you choose last.' And that form of ownership engineering solved, or optimized, what they were trying to achieve with the pie, which is: fewer disputes that they had to arbitrate.

That's the same thing with oil and gas. So, unitization is a way that you basically pool ownership of the surface landowners, and have just one--and you treat the surface landowners as if they were a single owner of the underlying pool.

So, instead of each surface landowner drilling their own well and destroying the pressure in the oil field, so nobody gets very much oil at all, what the unit manager does--the person who operates that entire area on behalf of the surface owners--is they drill a single well, and they optimize the speed and location to get the most oil out. So, that's a form of ownership engineering. And there are many of these.

Russ Roberts: I assume they were only able to do that because technology allows them to know how far the pool extends. Is that correct?

James Salzman: Effectively. Although unitization started before they had really advanced geology. And so, it really was more: Where do you find--

Russ Roberts: You just poke a hole and see what happens. Yeah--

James Salzman: So, where are people putting--you see this picture of wildcatters, right? Where just there are well-sites everywhere. They may say, enough, right? 'We're going to basically treat you all together.'

But, two additional points to add on. You must certainly do see this problem with water in California--

Russ Roberts: For sure--

James Salzman: in agricultural areas.

Russ Roberts: For sure.

James Salzman: That's, you know, the blue gold out there.

The second thing, and this is an image I'd like to suggest to your listeners, to build on what Michael was saying, is: Think of ownership as the remote control for social engineering. The owner of the resource basically shapes how you get things in order to really shape our behavior.

So, just take a simple example is the HOV [High Occupancy Vehicle] lands. I don't know if they have those in Israel or not, but stands for High Occupancy Vehicle.

Originally, this basically said, you know, for the fast lane, which had been first come-first served, once you got in the fast lane, you were there, even if you were driving slowly and people are on their horns, or you're driving quickly, that's your space. You're in there.

That's not the case around many American cities now during rush hour. HOV--initially, the remote control was government saying we control this lane, and we want to reduce the number of cars, and so we're going to give an advantage to carpoolers. Right? More people in a car, you get the fast lane. In some states, some cities, if you have a hybrid or an electric vehicle, we want to address air pollution, we're going to do it that way.

And now we're seeing, in some cities, saying, 'We'd like some money, and so we're going to move to congestion pricing.' And so, outside of Washington, D.C., at rush hour, on certain stretches, you can get into town on the fast lane, but it would cost you over $30.

And so, the key in all these places. And Michael's parents--they had the remote control. You want the pie? Okay. You know: I'm going to basically use the remote control to program you to cut them equally, and so you'll stop bickering.


Russ Roberts: Let's talk about cats in the condo, which I thought was interesting. There are a number of--remind me of what the technical term is. In certain cities, if you live in certain cities, there are certain restrictions on what you can do with your property. I remember, famously, I've talked about on the program before, Irvine, California, you can't leave your garage door open for more than a certain length of time, because it imposes costs on other people would be the argument, they want to look a certain way. You have to cut your lawn. You're not free; it was another--

This is like the anti-foraging. 'You want to let your lawn grow? Too bad. Well, you've got to forage it.'

And, those are public--those are city ordinances. But, the cats-in-the-condo is private. Again, it's an interesting example of changes in property rights voluntarily agreed on, if you move into the area--same with Irvine. And we rely on competition among municipalities to give people choices. But it's imperfect. So, talk about the cats-in-the-condo law case, because I thought that was quite interesting.

Michael Heller: This is a woman, Natore Nahrstedt, she moved into a big condo complex in Southern California, and she brought her three cats. Actually, I remember their names: Boo-Boo, Dockers, and Tulip. They were three--they were noiseless indoor cats.

Russ Roberts: Thanks for sharing. [crosstalk 00:47:15].

Michael Heller: Boo-Boo was spotted one afternoon by a neighbor in the window of her living room, who reported the cat to the condo association, which then promptly fined her. This was a no-pet condominium association.

She didn't pay the fine. The fine started accumulating. It soon added up to tens of thousands of dollars. She sued, and she said this private agreement cuts too close to the 'my home is my castle'-notion.

So, we have freedom of contract in this country, but we also have sort of core notions of property. The question the case came down to, in part, was: to what extent can you contract around fundamental notions of what property are? what fundamental notions of what your home can be? And she said, 'It cuts too close to my personal sanctity to tell me that I can't have a cat living with me in my home, where the cat is a noiseless indoor cat, and it has no effect on my neighbors.'

The case was one of the most watched cases in American property law history. It may sound like a fairly dry question, but it was a crucial case for the survival of the condominium form of association in this country. Before 1960, basically, nobody lived in condos. That legal form hadn't really been invented. Just like unitization solved the problem of overdrilling in oil fields, the condominium form of ownership technology is what made it possible for people to live together much more densely in cities and suburbs in America.

So, that form was imported and adapted from Germany, and then brought into Puerto Rico, and from there to New York City. From there, it's spread across the country. We went from zero to about 70-, now nearly 80-million Americans, living in some form of condo association. And the question in those condo associations is: Does every Boo-Boo, Dockers, and Tulip get a day in court if Natore doesn't like what the association is doing? Or, does the association have the final say on these property ownership questions?

So, the case was fundamental. It was case about Boo-Boo, but it mattered whether or not that Boo-Boo got her day in court to prove that she was a noiseless cat.

And the California Supreme Court, in that case, said 'No. Boo-Boo does not get her day in court.' That, once you signed the contract, as crazy as a no-cat policy may be--or you must close the garage door policy, or you must plant these flowers, or paint a certain color, or there's places where they say if your dog's paws touch the lobby of the building, you get fined--whatever it is, the association basically gets the final say.

And that's pretty much become the way condominium law has evolved in this country, and it's what makes it possible, because condominium associations, by and large, don't need to defend against claims from individuals who live there. If they don't like that condominium association, the theory is they can move somewhere else, because they agreed in writing when they first moved in.

Now, here's the rub, and you said this earlier in your question, which is: we assume that we'll have diversity of associations, and people will find the one that suits them.

We have several hundred thousand, about 250,000 condominium associations in this country, and they all use the same pattern documents. So, actually, although there's a huge number of these associations, and in some cities like Phoenix, it's virtually impossible to buy a home that isn't in one of these associations, there's actually extremely little variation. So, if you have some idiosyncratic desire, like liking cats, you may well not find a place to live in that community.

So, it does push us back to the question: What should be our fundamental values that go into what it means to own a home in this country? And maybe some of that can and should be protected from the notion of freedom of contract.

Indeed, in California, the legislature there, after this case, basically passed the Boo-Boo Protection Act and said, 'You can sign whatever condominium association you want, the document you want, but you can't exclude a cat or a dog.'

Russ Roberts: I'm tempted to quote The Mikado, and say that invoking the names of the cats has 'verisimilitude to an otherwise bald and unconvincing narrative.' But, I think it's accurate. I don't want to say that.


Russ Roberts: But, I think it raises a lot of interesting questions. I'm just going to--let me just say a few things about it, then Jim, you can weigh in. The first is that there are a lot of things that are against the law, literally, meaning there's legislation about it, and many of us, when confronted with a law breaker, will just keep quiet.

So, if I saw Boo-Boo in the window, even though, let's say I don't like cats--I happen to like--I'm okay with cats. I like cats more than dogs. I'll just leave it at that. But, if I saw a cat or a dog at the window of a house, indoors, I would just say: I know it's against the covenant of the place, but I would just leave it alone. I think as we become more--I worry that as we become more litigious, meaning prone to lawsuits and using legislation and regulation as a way to mold and shape behavior, I worry that we become a little less tolerant of those kind of things.

And I understand, if you're allergic to cats, or you don't want children, say, in your condo association, because you want quiet, or whatever it would be--I understand that the freedom of choice that's there.

But, the other thing I just want to add is that, of course, many times, we don't allow any of that freedom of choice. We don't let people sell their kidneys in the United States--an example you talk about, and we've talked about on the program before.

There are a lot of things where, again--'It's my body,' but we say, 'But not there.' And we say 'It's your castle, but not for cats, because you signed this piece of paper.' And, it's not--a lot of times, those covenants are not actually enforced until somebody speaks up; and then there's a conflict, and the law, the legislation, the state intervenes.

But, I just think it's a fascinating example of that sort of interface between what's legislated or contractually agreed to, what is allowed to be contractually agreed to, a lot of things--like, you talk about in the book, indentured servitude, selling yourself into some form of slavery. Used to be a very common thing. Everybody thought it was normal and wonderful, actually, because capital markets didn't work so well, and it was a way to get access to resources for people who didn't have any capital. And, all of a sudden, that's not--'Well, that's disgusting. We don't allow it at all.' In America, you're allowed to do whatever you want, except.

So, anyway. Go ahead, Jim. Sorry about that.

James Salzman: Yeah, I mean, there's a lot in what you said. So, let me just pick out two particular things, then we can move on.

One of the things that economists basically use is this incredibly antiseptic term, 'transaction costs,' which I think is--it's a nice broad term, but it's unfortunate, because people are--it doesn't capture the emotion and the nuance of the fact that conflict is stressful. There's a phrase you hear, 'Don't try to out-psycho a psycho.' Once you start trying to enforce a rule against someone who is not complying with it, it can escalate quickly.

And that's why we tend to--part of it is we tend to work things out, because you don't want to escalate these things. There's no question, I think, in many parts of American life, we tend to be escalating a lot more. People call it polarization, partisanship. I think it's a broader issue. And ownership is one way that that comes out.

The second thing is: You're absolutely right, in that what we assume is inviolate [? inaudible 00:55:06]. You can't sell parts of your body. Much of that is technology-contingent.

So, you take surrogacy, surrogacy today, the conception takes place in a Petri dish, in a test tube, and then the embryo is implanted. That's a different kind of situation than when the surrogate was quite literally the biological mother. And so, the notion of, how should you be able to own your body? Can you--should we allow women to be surrogates? The technology changes the contours of that.

Russ Roberts: Yeah. That's great point. That's a great point. Michael Munger, 39-time, I think, guest on EconTalk--I think he uses the phrase transaction costs in all 39 of those. So, he's a Doug North student. So we'll probably have a whole episode on defending transactions costs as a concept--as a sterile concept.

But, I just wanted to invoke him there. I think he'd appreciate it.


Russ Roberts: We're almost out of time. Many other interesting examples in the book, but I wanted to just talk about the Coasean one that you discuss, as again, many of them are Coasean. But, the one that you explicitly discuss is a really interesting one, which is--

I think about it all the time, because recently, because I'm in Jerusalem, a lot of people like to be able to look out over the Old City, here in Jerusalem. Of course, what used to be a great view can be ruined by somebody building a taller building in front of you. A lot of cities deal with this in more obvious ways, dealing with sunlight, because that's going to be an issue.

But in your example, which I loved, is for obvious reasons, because the emotional content of both pieces of this: Redwood trees grew tall and blocked solar panels. So, what happened in that case, and what does Ronald Coase have to do with it?

Michael Heller: Yeah. So, this is this took place in the wonderfully-named town of Sunnyvale, in Northern California. It's basically this sort of ecological cul-de-sac. You've got two neighbors: one neighbor has solar panels, puts in solar panels; the other neighbor is growing redwoods. As you describe, the redwoods grow, and in time, throw shade on the solar panels. And so, this being the wonderful country of America, they sue each other. Right? And, it's basically, it is conflicting claims of attachment. 'My home is my castle, if I want to grow trees on my property, it's my right.'

The second attachment argument is a bit is a bit subtler. It's saying, I have a right to the sunlight that is attached to my solar panels. If you block that, you've basically taking something that is mine, that I have a right to.

And, interestingly, we think of this as it has to be, 'I win, you lose,' or, 'You win, I lose.' The State of California put their thumb on the scale of the solar panel owner and said to the redwood owners: You have to chop your trees. It's a wonderful quote: the redwood owners say, 'We're the first people in the history of California to basically be criminals because we're growing redwood trees.'

So, that's the classic simplistic notion of ownership.

Coase gives a very different and more nuanced way to look at it. So, Coase would say, 'Look, it's not just I win, you lose. What if you said, okay, solar panel owner, you win, but you have to reimburse the redwood owners for the loss of lopping off the tops of their trees? Suddenly, the solar panel owner thinks, 'Well, how much is the shade really costing me? Maybe I can more cheaply just move where the panels are.' Or equally, if the redwood owner wins, then they have to reimburse the solar panel owner for the loss of electricity. It creates much more room for creative solutions that wouldn't be there if it's: I win, you lose.


Russ Roberts: But, as Coase pointed out--and that's the part I liked about your book, especially--is that some people misunderstand Coase as saying, 'Well, whichever is the best thing for producing maximum value, they'll come to an agreement.' But, as you point out, earlier, sometimes you have a psycho, and transaction costs become immense. I think Coase recognized that--he was not an idiot. He was a very thoughtful and smart man. And he made the point that when transaction costs are high, which it could be either because there's a lot of people who are growing the redwoods or blocking your solar panels, which is unlikely, but it could be, and in many other situations it is--if the transaction costs are high, you can't rely on gains from trade, effectively, or arbitrage, to solve this problem and produce the highest value.

So, you will assign property rights, then, to the person who can either use the resource with the highest value, or can avoid the harm with the smallest cost.

And, I think the deeper insight, which Don Boudreaux and I have talked about recently in an episode, is that--it's the idea that that harm is reciprocal. It's easy to think, 'Oh, it's the fault of the tree grower,' because the trees blocked the shade, blocked the solar panels. But, it's also the fact that the solar panel person wants to get the sun, and the other person wants it.

There's no moral issue here.

I think a lot of people caricature Coase inappropriately by invoking moral examples where I think they're wrong. Meaning--you don't apply Coase. They're right: You don't apply Coase. They're wrong in saying that Coase is horrible. Again, he's not an idiot: He understood that there were--I assume he understood that morality, often, was different. Or, you could add that to the scale, if you wanted to, in terms of costs or value. But, so many times, people who say, well, you shouldn't--an example used in the book--you shouldn't allow people to have the right to pollute, and then to be able to trade those rights.

Well, you might want that, if that means less pollution, or pollution at a much lower cost of restraining it. And to cast that as a moral question of, harm, or oppressor and oppressed, rather than just: Here's two people arguing over what's mine. It's much better to remember that, and you'll get better public policy. Michael?

Michael Heller: So, Jim, and I auditioned stories for this book. This book is all stories. When we first conceived of the book seven years ago, we first started working together on this, the framing in our mind, the tagline for the book was, we are going to write Freakonomics for ownership. So, Freakonomics explained really complicated economic principles about incentives, microeconomics, using cool stories about sumo wrestlers and drug dealers. And that's our book, as well.

And, what we're trying to show is that exactly the story about the solar panels and the redwoods--what we are trying to show there is many resource conflicts, you can sort of understand them more clearly by taking away the notion of fault.

And that really was very much Coase's point. You can understand the conflict as just--the only reason that the solar panels are a problem is because of the redwood trees, and vice versa; and you understand them as reciprocal harms.

And, that was really--one of the first insights that he had was taking what seemed unsolvable conflicts and making them more, sort of, legible as about reciprocity.

And, then once you have that reciprocity, the next step are the points that you were making about--and Jim was making--about, sort of, how do you solve the conflict?

So, that's where the notion of transaction costs is so valuable, is studying, is understanding that we don't live in a perfect world, where people would just work it out, because there wouldn't be spite, there wouldn't be transaction costs, they would have perfect information.

So, I think what Coase was so powerful in contributing was looking at the structure of why the book--appointing economists, but also lawyers--to asking: Why is it that these bargains are failing? What is it about the structure of a bilateral, these two neighbors, what is it about that, that sometimes leads to failure? And, then: If that's the case, are there ways to reduce the cost of them bargaining with each other, or is that less costly than some regulatory solution, like the California Solar Shade act? And, there's going to be cost and benefits for private transactions, and costs and benefits for regulation.

What Coase so helpfully pointed us to, is looking at the underlying ownership of--underlying structure of ownership, and having us realize that those stories are just in conflict, and can be told. Right?

So, each of the redwood owner and the solar owner, they were just telling stories about the attachment principle. And both of those are plausible stories. And we have to decide between them based on the tools that we have, that Coase very much taught us, about learning about the structure of bargaining that arises in different circumstances, like when there's just two neighbors, and where you might have spite, and what you do in that context.


Russ Roberts: I think it's got a much broader application, and I think, Jim, you were maybe alluding to this earlier. So, often, in these cases of conflicting property rights, there's a moral outrage component. So, it's not just, ;I'd like to recline my seat, and I'd like to be able to open my laptop.' It's, 'You have no right to do that.' Because, I can only see my story. I can only see one of the six, and I can't even imagine that you've got one, also. And, once I invoke the moral high ground, of course, 'I think I deserve to have my story be triumphant.'

This is a much bigger problem than property rights. With Coase, it's, of course, part of our problems with national conversation in much of the world today. And, I think what Coase teaches, which I think is disturbing--I'm a big fan of morality, by the way, as a decision maker--but, what Coase reminds us is that a lot of times morality is not what's at play here. It feels like morality, but it's actually just that your narrative conflicts with this other person's narrative, and their narrative is actually, in many situations, the right narrative, just as yours is.

But, in this case, they conflict. And you're going to have to either work it out--privately--or you're going to have to find a legislative or regulatory solution to avoid--if it's a case of high transaction costs and you can't work it out effectively.

But, I just think that insight that--I think a lot of people criticize Coase, like, 'Oh, he didn't understand morality.' I think he actually did something deeper, potentially. I don't know how much he understood it, but he helped me understand it: which is that moral outrage, that indignation that your story is just wrong: it's actually just a different story. And it also applies to things way beyond property rights.

James Salzman: Well, I mean, everyone's a hero in their own narrative.

Russ Roberts: Yeah.

James Salzman: Right?

Russ Roberts: Yeah.

James Salzman: That's the problem.

Michael Heller: And the way that works out for our world is--what we are very much trying to get across with the solar panel story, with the airplane plane seat story, with the parking chair story--we have dozens of these stories in the book that are, like, these counterintuitive, surprising stories--is that I think for many of your listeners, they have intuitions based on morality, based in their value judgments about what the answer must be, and that's great. And, what we want them to see is that ownership is always a choice. That it's not fixed. It's not natural. It's not a given.

That, when someone's pushing back against their story, there's real value to saying: What is the other story that's being told? Who gets to be the decision maker? What language of ownership counts for resolving this conflict? Do we resolve it informally as neighbors? Do I offer them to buy them a drink, so they don't lean back? What are the different tools that I can use to resolve ownership stories? Because they aren't a given. The law isn't the answer, by and large. These are choices, and they're choices, ultimately, based on our deepest values and morality.

So, if that's one message that we can get across, which is to empower your listeners to be less afraid of ownership. And people often think of ownership as being something dry, as being something written down somewhere. Certainly, when our law students come into our law school classes, they think learning about ownership is going to be like studying in the phonebook. They think they're going to basically learn hundreds of really boring rules until they want to kill themselves. And that's just not what ownership is about, at all. It's very much the image people have of ownership. It's just this dry, dusty set of laws. But, that is so far from the reality of: Can I lean my seat back? Can I fly my drone over your backyard? Can I get my genetic data back, if I swab my cheek and find out my ancestors?

All of these debates are debates that are up for grabs. They are choices that we're making. They are choices that we're making among a very small number of tractable stories--stories that kids learn on the playground. Like, my son and daughter were fighting in the sandbox--this is when they were there much younger. One of them was saying--they were both saying, 'It's mine.' They were holding on to a shovel, 'It's mine.' 'It's mine. And it turned out, one of them was--my daughter was saying, 'It's mine because I had it first,' And, my son was saying, 'It's mine because I'm holding on to it.' They were both absolutely sure that the shovel was theirs. Turned out that even as little kids, they were already using two of those stories. And those stories are always up for grabs. Always up for grabs.

Russ Roberts: So, to speak, as it were. I just would mention the tract in the Talmud, [inaudible 01:08:35], which is about similar issues of holding, and grabbing, and first, and disputed ownership, which is a very old--as you say, it goes back thousands of years. Jim, anything to close us out, you want to add?

James Salzman: No, I think Michael put it well. The fact is ownership is fundamentally a question: who gets what, and why? And that's always going to be up for grabs. It always has been. It always will be.

Russ Roberts: My guests today have been James Salzman and Michael Heller. Gentlemen, thanks for being part of EconTalk. The book is called Mine!

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