Student Blogger - Towards a General Theory of Making it Rain
Abandonment of property is arguably bigger than ever. To give a few examples, craigslist and freecycle.org have become popular venues for giving away property for nothing other than the hassle of picking it up. Many jurisdictions have established laws and procedures allowing abandonment of children without prosecution, most controversially in Nebraska, where recent abandonment of teenage children has caused controversy. In some segments of pop culture, the practice of "making it rain," or throwing cash to a waiting crowd with predictably chaotic results, has become popular - either as a means of signaling wealth or simply providing entertainment.
What, if anything, does law have to say about these and similar practices? How could it do a better job in dealing with them? Professor Lior Strahilevitz sets out to answer these questions in his recent paper "The Right to Abandon," presented at this week's Works in Progress (WIP) talk.
In the paper, Prof. Strahilevitz identifies three different legal approaches to abandonment - regulation, permission, and promotion. The approach taken, and therefore prevailing legal rules, differ depending on the property being abandoned and arise from both statutory and common law. Regulation may be the most prevalent approach. Time, manner, and place restrictions on abandonment are common - trash can be abandoned, but only in certain places and on certain days. There may also be state licensing regimes governing who may abandon property and under what conditions. Most notably, the common law generally prohibits abandonment of real property entirely (presumably for property tax reasons in the modern era, or because of feudal incidents obligations in earlier times).
Under other circumstances, law permits abandonment. This rule applies to the majority of chattel property (with the notable exceptions of animals/pets and waste). The rule also extends to intellectual property - the Lanham Act provides that trademarks are considered abandoned if their use is discontinued. The property abandoned on craigslist and freecycle.org falls under this permissive regime.
Finally, it is theoretically possible for law to encourage abandonment. Prof. Strahilevitz has identified at least one statute that appears to create such a regime: a Mississippi law provides that abandoned livestock will be sold by the state and the proceeds (after deductions for the state's costs) returned to the abandoning owner. This law may be poorly drafted, and it is not clear if it is actually enforced.
In any case, Prof. Strahilevitz argues that the law currently fails to rationally choose among these approaches, and suboptimally balances the costs and benefits of abandonment. Broad prohibition rules are inefficient because they assume that abandonment always creates negative externalities - not all abandoned property is waste. Restrictions on abandonment also make less sense now that social and transaction costs of abandonment are reduced by online exchanges.
In place of the current regime, Prof. Strahilevitz proposes a general relaxing of restrictions and prohibitions on abandonment, at least in cases where it cannot be said with certainty that abandonment carries negative externalities. More limited restrictions, such as requiring that abandoned property be clearly labeled and left in publicly-accessible places (these requirements could be combined by organizing a central location for abandoned property, a real-world analog to craigslist), would be more efficient, he argues.
The faculty audience responded with a variety of comments and criticisms. The most interesting came from commenters who argued that the boundaries of "abandonment" are not as clear as the paper (or, indeed, the law itself) would lead one to believe. For example, commenters noted there is little justification in economics for treating goods "sold" for a zero price differently from those sold at very low prices, or for treating all goods sold at a zero price the same by classifying them as "abandoned." For example, imagine someone facing eviction. They might choose to hold a cut-rate furniture sale, or simply give the furniture away by advertising it on craigslist (perhaps to avoid disposal costs). Why should the law treat the two very similar cases any differently (it doesn't, since the furniture is chattel and the abandonment regime is permissive - but it could do so, and does for other types of property), more importantly, why should we consider the two "sales" to be conceptually distinct? The commenters also pointed out that zero-price transactions vary widely when viewed from an economic point of view. Microsoft "gives away" Internet Explorer as part of a business strategy where this kind of "tying" makes sense (or at least Microsoft believes it does). In the furniture example above, disposal costs may exceed market value of the abandoned goods. Someone who chooses to "make it rain" can be described as having an unusual utility function in which the utility they recieve from their "sale" peaks at a zero price, or simply as being willing to pay for an unusual form of entertainment utility. Each of these cases, and many others, are quite different from each other. Property treats gifts, another class of zero-price transactions, differently from abandonment - why make this distinction, and not any of a variety of others that could be made?
Another commenter noted that philosophy and psychology offer another avenue of attack on the monolithic category of abandoned property. Abandonment of chattel property should be (and in many ways, is) treated differently both legally and conceptually from abandonment of pets or children.
This critique is probably directed more at the conceptual category of "abandoned property" enshrined in both property scholarship and law than at the paper itself. Prof. Strahilevitz is to a large extent constrained by the categories that already exist, and in fact is criticizing many elements of that law and its attempts to categorize abandoned property. Nevertheless, the critique perhaps points the way toward a more general account of property transfers at low nominal prices that would attempt to deal with the broad range of scenarios described above. Prof. Strahilevitz made some steps in this direction in the paper with a "taxonomy of abandoned property," but I think that there is more to be done in this vein. Though a positive theory explaining the different legal treatment of tying, "making it rain," freecycling, and child abandonment - and a normative theory describing a better legal approach - remains elusive, Prof. Strahilevitz' paper is, I think, a valuable first step in that direction.