• 01 July 2009

Land Virtues

Eduardo M. Peñalver - Cornell University Law School

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My Article, Land Values, has two goals.  First, it explores the descriptive and normative limitations of certain “law and economics” discussions of the ownership and use of land.  Law and economics provides, among other things, “a theory of the purposive behavior of private landowners” to employ in assessing legal structures and rules.  Notwithstanding differences among their approaches, legal economists working in the area of land use have traditionally agreed in constructing their behavioral theories around the figure of the “rational” landowner motivated primarily by a desire to maximize her wealth.  In addition to deploying the rational actor model to predict how landowners will respond to legal rules, proponents of law and economics have often gone one step farther and endeavored to evaluate the consequences of the interaction of their behavioral model with particular legal structures and rules.  Both of these features are present in Harold Demsetz’s classic article, Towards a Theory of Private Property, excerpts of which are a staple of first-year property classes.

Demsetz’s market-centered approach struggles in different ways with features of land that distinguish it from other “commodities.”  The complexity of land—its intrinsic complexity, but even more importantly the complex ways in which human beings interact with it—undermines the positive claim that owners will focus on a single value, such as market value, in making decisions about their land.  Land’s status as an essential component in any human activity that requires physical space resists efforts to treat it like other commodities.  In Karl Polanyi’s words, “[t]he economic function is but one of many vital functions of land.”  Instead, Polanyi argued, land “invests man’s life with stability; it is the site of his habitation; it is a condition of his physical safety; it is the landscape and the seasons.” As a consequence of this complexity, many of the values we attribute to land do not operate in markets.  This has two consequences.  First, actors who are sensitive to these non-market values will sometimes act in ways that are contrary to the predictions of positive economic models built around the traditional rational actor.  Second, and more normatively, these values will be invisible to actors motivated primarily by a desire to maximize their wealth.  The result of this is that narrowly rational actors operating in an unregulated market are likely to act in ways that undermine land’s nonmarket values.

I add to this equation a consideration that I call “land’s memory.”  By this I mean the combined impact of the durability of land uses and the stabilizing consequences of human sociality, which calls into question the normative assessment that rational landowners are, left to their own devices, likely to be using their land wisely, or at least more wisely than other modes of decision making might hope to accomplish.  Demsetzian theorists have argued that future generations do not really pose a problem for their theories of land ownership because an owner’s wealth will depend on “how well he takes into account the competing claims of the present and the future.”  Accordingly, they have suggested, individual ownership provides an adequate (indeed, the best practicable) mechanism for considering the possible uses to which future generations will want to put land.  This is because the market for land will reward with greater wealth those owners who guess correctly about the future. 

The problem here is the possibility that market actors might excessively discount effects of their decisions that occur far in the future.  There’s substantial evidence that private actors employ relatively high discount rates.  And this raises two questions: (1) whether citizens acting through the political process (or some other collective mode of decision making) employ a lower discount rate; and, if so, (2) whether other features of collective modes of decision making generate enough error to outweigh any improvements that result from their greater ability to take into account the interests of future generations.  These are difficult and important questions, and I do not pretend to have the answers, but they are for the most part left unaddressed by proponents of the normative Demsetzian position.

These observations do not discredit the judicious use of economic analysis as a tool of land-use policymaking, but they do point toward the need for more sophisticated models of landowner behavior and the benefits of a richer normative theory of property, one that is capable of situating the output of that economic analysis within a larger moral framework.  Setting forth the broad outlines of one such theory as it applies to the law of land use is the second goal of Land Virtues.  An approach to property rooted in the Aristotelian tradition of virtue ethics, I argue, is capable of incorporating the valuable insights that have made economic analysis so appealing to land use theorists without distorting our moral vision or treating economic consequences as the only considerations that ought to matter.

Neither of the two principal competitors of normative economic analysis—Hegelian (or so-called “personhood” theory) or Lockean moral entitlement theory seems up to this task.  Libertarian accounts rooted in the Lockean tradition (such as Robert Nozick’s) are particularly ill-suited to situating this positive economic analysis, since they disclaim any concern for consequences in constructing their conception of ownership rights.

From within an Aristotelian, virtue theory of land use, the justification for legal intervention will not be limited to situations of market failure.  Rather, the law will have as an important goal affirmatively promoting human virtue and flourishing.  A virtue theory of property shares with normative economic theories the intuition that collective decision-making about land use should be reserved for situations in which legal intervention is likely to yield better (that is, more morally correct) decisions about how the land ought to be used.  But knowing how to divide decision making between private owners and collective authority in different contexts becomes a deeper and more difficult challenge than merely determining who is best positioned to engage in cost-benefit analysis.  Although I do not provide a comprehensive account of the contours of the proper domain of legal intervention, my principal goal is to argue, first, that the domain of appropriately collective land-use decision making is not coextensive with the economic concept of market failure and, second, that concepts developed within the Aristotelian tradition provide some promising tools for finding its boundaries.

Laws that override private decisions can accomplish three important goals.  First, by enforcing certain specific moral obligations, they can protect those, such as the poor and future generations, whose ability to flourish might be harmed by owners’ immoral decisions.  This is the goal of legal enforcement of moral norms that Demsetzian theorists are most likely to attempt to assimilate into their model.  They will recast harm to third parties as “externalities” that, in the presence of transaction costs, might not be internalized by market mechanisms.  This translation, however, will not fully capture the content of the virtue account.  In addition to the conceptual distortions introduced when moral wrongs are converted into “costs,” the reciprocal nature of the economic understanding of externalities means that the internalization of externalities can be accomplished, and the goals of efficiency served, by legal solutions that are, from the point of view of virtue theory, morally obtuse.  As theorists like Joe Singer and Eric Freyfogle have argued, in order to craft an intelligent legal response to property harms, we need to supplement the notion of externalities with a resort to moral norms.

The other goals of legally enforced moral norms are less at home within the economic framework insofar as those norms seek to modify, correct, or discourage the preferences that traditional legal economists aim primarily to satisfy.  Thus, a second, more indirect, goal of enshrining certain obligations of virtuous conduct into law would be to constrain the behavior of non-virtuous owners and, over time, to teach them to act virtuously of their own accord.  Such a mandate can have consequences that ripple well beyond the confines of a specific legal prohibition or prescription.  The notion that legally compelling someone to act as if they possessed a virtue might actually foster virtue is not far-fetched.  Consider the impact of Title II of the Civil Rights Act of 1964, which mandates a nondiscrimination norm for private owners of places of public accommodation.  A law prohibiting such private discrimination was at first criticized in prominent quarters as a violation of property rights and as a hopeless, paternalistic effort to force people to interact against their wishes.  Civil rights laws prohibiting discrimination in restaurants and hotels are now nearly universally accepted and have contributed to dramatic changes in racial attitudes.

Third, even those who are not vicious stand to benefit from laws mandating virtuous conduct: legal specification can help to clarify social obligations and to coordinate collective virtuous actions.  Well-crafted environmental statutes or regulations, for example, can help spread the word about best practices to landowners already inclined to act responsibly but lacking information about the remote consequences of their behavior.  Civil rights statutes provide another helpful illustration.  Scholars have noted that statutes prohibiting discrimination empowered proprietors and employers who did not particularly want to discriminate but who did so out of fear of reprisals for violating social taboos.  By ensuring that their less-virtuous competitors would not be able to obtain a competitive advantage by offering a segregated alternative, civil rights statutes reduced the cost of doing the right thing for those already predisposed to do it.

Rejecting market-oriented economic theories of landowner obligation in favor of a virtue-based approach does not lead to an embrace of unrelentingly collective or statist decision making about land use.  Even where we reach the conclusion that landowners’ self-interested calculations should give way to overriding moral considerations, the question whether to enforce coercively the demands of virtue through the force of law will turn, as virtue theorists have long understood, on a number of considerations.  It will turn, for example, on our evaluation of the likely behavior of landowners in response to differing forms of legal compulsion and persuasion aimed at ensuring that those obligations are met.  This evaluation will itself require an understanding of the character of the typical landowner and of the community in which she is situated.  This is an area of virtue jurisprudence in which sophisticated and empirically grounded positive economic analysis (as well as empirical analysis from within other social science disciplines) will have a great deal of value.

The answer will likewise depend on the mechanisms for political decision making at our disposal, and the degree to which we think actors’ political behavior within those mechanisms resembles and partakes of the same virtues and pathologies of private decisions or is instead subject to its own context-specific strengths and shortcomings.  Even where self-interest seems (as a descriptive matter) to reign in politics as thoroughly as it does in the market, we should not assume that the pattern of collective decision making observed at one time and place is set in stone, and cannot be changed for the better through concerted efforts to reform institutions or to educate and train decision makers to become more virtuous.  Again, attempts to answer these questions will gain a great deal from sophisticated, and non-ideological, empirical analysis, the sort of work that many contemporary economists are producing.

Finally, the independent value of individual autonomy, which is itself an important component of human flourishing, may require that we accept private decision making in certain contexts, even when we know it is likely to yield inferior results.  This is what the federal Fair Housing Act seems to do, for example, by exempting from its antidiscrimination norms small, owner-occupied units, or what Title II of the Civil Rights Act of 1964 arguably does by exempting private clubs. 

The task of determining when, how, and in what contexts (if ever) these various considerations control is a difficult puzzle that goes to the very heart of the proper division of labor between the community and private landowners.  It is a puzzle, however, that is too often ignored within contemporary land-use scholarship.dingbat

 

Acknowledgments:

Copyright © 2009 Cornell Law Review.

Eduardo M. Peñalver is Professor of Law, Cornell University Law School.

This Editorial is based on the following full-length Article:  Eduardo M. Peñalver, Land Virtues, 94 CORNELL L. REV. 821 (2009). Click Here for the Full Version


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