Limits on freedom to use private property rights

Wednesday , January 07, 2015 - 12:00 AM

By VIJAY K. MATHUR
Standard-Examiner contributor

Mark Saal, staff columnist for the Standard-Examiner, wrote a column on Oct. 21, 2014 defending the right of a property owner who used artificial turf for landscaping before getting permission of the Ogden City Planning Commission. Saal questioned objections raised by neighbors and OCPC against the use of artificial turf. Saal equated choice of artificial turf to the choice between a Dodge SUV and Ford pickup.

The Fifth Amendment of the US Constitution does protect private property rights. It requires due process of law before anyone could be deprived of private property (also see 14th Amendment) and just compensation if private property is taken for public use. However, both Amendments are silent on owner’s use of the property, among the community of other property owners.

Professor Yoram Barzel, in his book “Economic Analysis of Property Rights”, discusses two types of property rights –- economic rights and legal rights. Economic right is the right to enjoy one’s property. Use of artificial turf is an example of such right. However, legal right is assigned by the state to individuals and enforced by laws and/or regulations within limits imposed by the Constitution. Legal rights, in general, augment economic rights. OCPC has recommended to the Ogden City Council against the use of artificial turf for landscaping.

Laws and/or regulations do not protect economic rights without the approval of an appropriate government entity. The approval is contingent upon the determination of the extent of any damaging and harmful effects on neighbors (adverse externalities). I am sure a property owner would not be protected by the judicial system if he enjoys playing trumpet every night on his front lawn at midnight or releases barking dogs when neighbors are asleep at night.

Therefore, the question is how much freedom do neighbors have in the exercise of their property rights? The simple answer is that one has that right so long as your neighbors are not significantly harmed and their property values are not significantly affected. To prevent such episodes, communities have zoning laws to prevent non-conforming uses.

The use of the word ”significantly” is important, because intervention to prevent damages or harm to others must meet the criteria that intervention leads to overall well being of neighbors in a community. In case of conflicts, one approach is to resolve the matter in the court of law. The recent court case in Morgan County, reported in The Salt Lake Tribune, November 4, 2014, is such an example. Claiming harmful effects of smoke, a neighbor sued another neighbor for using a smoky wood-burning boiler to heat his home. The court ruled in favor of defense, arguing that there was no convincing evidence of harmful effects.

The plaintiff spent $47,000 on the court case in Morgan County. It suggests another cost effective avenue to resolve disputes of such nature. Perhaps wood-burning boiler user could have been persuaded by the harmed neighbor by an offer of money (less than $47,000) to either discontinue using the boiler or relocate it, so that the smoke does not inflict harm on the neighbor. In some situations, such a bargained solution could be an efficient solution to reduce external damage and/or harm.

Nobel Laureate economist Ronald Coase argued for such a free market bargained solution to externalities that cause market failure. But, such a solution runs into problems such as substantial time and money cost in bargaining (transactions costs), especially when a large number of participants is involved, and assurance that property rights thus bargained and agreed upon would be honored and enforced. Since market based free exchange solutions to the transfer of property rights are not always feasible and /or cost effective, government intervention is required to assign and enforce property rights and establish rules and regulations for their transfer where transfers are possible.

In addition to efficiency aspects, property rights create incentives to maintain, protect and improve private property, and stimulate innovations. However, sometimes conflicts arise between benefit flows and ethics. An example is the conflict between patent rights on a pharmaceutical company’s life saving cancer drug and its right to charge market price, and the possibility that many who cannot afford the price may die.

Private property rights, essential for efficient functioning of markets, innovation and growth, have a downside when they cause such an adverse distribution of resources that threatens wellbeing of most people and prosperity of a nation. Government has a significant role in making sure that benefits of property rights are not concentrated in the hands of the few. That is the reason we have many entitlement programs like Social Security, Medicare, Medicaid and health care under Affordable Care Act. However, the government also has the responsibility that such programs do not hamper future growth of the country by undermining incentives to work, innovate and invest.

Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden.

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