‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral,’ by Guido Calabresi & A. Douglas Melamed
Guido Calabresi and Doug Melamed’s 1972 classic “One View of the Cathedral” sets up a framework that is now standard fare for first-year law students. First-years spend their early months trying to figure out what they are doing and why they shuffle from property class to torts class. They hear terminology utterly new to them in those early weeks, including the idea of a “tort” itself.
A potential “ah ha!” moment for a student is figuring out that “property” rules favor full ownership and injunctions where upfront valuation is difficult and transaction costs are low. Tort/contract rules—aka “liability” rules—favor situations with clearer valuation but high transaction costs, like holdout situations. Liability rules break ownership biases in law, allowing the violation of entitlements for the sake of efficiency. They apply damages after-the-fact to settle out the resulting harms. In other words, you eject trespassers from your land, but you get paid when you’re the last holdout blocking a new railroad track. Indeed, both sides can be better off when these rules are used properly.
“One View of the Cathedral” was an “ah ha!” moment for scholars as well. Many professors had long internalized the differences between property and torts. But none had articulated them so simply and intuitively. Nor did most law scholars in 1972 have such a developed sense of the economic tradeoffs present between property and tort-rule regimes. These were the early days of the law & economics movement, after all.