Property Rights and Welfare Economics: Miller et al. v. Schoene Revisited
The authors of the present comments have directed their attention to several points in our analysis of the case of Miller et al. v. Schoene. The purpose of our attempt at a diagrammatic exposition of the case was to ultimately illuminate the nature of choices open to society in utility space. While both have valid criticisms, it is unfortunate that neither attempted to fully explore and demonstrate the implications of their recommendations and suggestions on the grand utility frontiers. Following their lead we will specificially respond to their several comments sequentially:
0520 Institutional Law and Economics 453
From its beginnings in the late nineteenth century, institutional economics has been concerned with the analysis of the interrelations between legal and economic processes. The institutional approach to law and economics examines both the influence of economy upon law and legal reasoning and the influence of law and legal change upon economic activity and performance. This essay examines the central tenants of institutional law and economics, dating from the early work of individuals such as Robert Lee Hale and John R. Commons and through its modern manifestations. As such, it emphasizes the evolutionary nature of law and economy, the tension between continuity and change, the problem of order, the reciprocal nature of legal-economic problems and the attendant dual nature of rights, the problematic nature of efficiency, and the need for a comparative institutional approach to the practice of law and economics. By recognizing the multiplicity of potential solutions to legal-economic problems and the underlying value premises attending each, the comparative institutional approach to law and economics attempts to flesh out both what is actually going on within the legal-economic nexus and the alternative possibilities open to society within the legal-economic decision-making process. JEL classification: K00
Detrimental Externalities and Non-Convexity of the Production Set
This paper undertakes to show that detrimental externalities tend to induce non-convexity of the social production possibility set. In particular we show that if externalities are sufficiently strong, convexity conditions must break down. It is not our objective here to review in any detail the difficulties caused by non-convexity. Some of these consequences have long been recognized and are widely known.2 However, until the recent appearance of papers by Starett [8], Portes [5], Kolm [3] and Baumol [2], it was apparently not recognized that externalities themselves are a source of non-convexity. These more recent writings suggest more than one connection between the two phenomena. However, one particularly straightforward relationship seems to have received little or no attention. With sufficiently strong interactive effects non-convexity follows from the simple fact that if either of two mutually interfering activities is operated at zero level the other suffers no hindrance. The goal of this paper is to explore this phenomenon and show very clearly how it is that sufficiently severe detrimental externalities of the form described and non-convexity necessarily go together. In the first three sections we show both with the aid of illustrative examples and more general analysis that detrimental externalities of sufficient magnitude must always produce non-convexity in the production possibility set for two activities: one generating the externality and one affected by it. In Section IV we show that the problem is reduced but not generally eliminated by the possibility of spatial separation of offender and offended. Achievement of the "right" spatial separation turns out not always to be a simple matter, however. Section V contains some speculations about the way in which the number of local peaks in