[MUSIC] This amazingly simple tool is a powerful way to generate the possibility of new legal rules. The tool asks you to keep an eye out for two by two distinctions, which can visually be displayed in a four quadrant box. Let's start with a simple example that is taken from an article by Steven Crowley and John Hanson. These authors we're thinking about how accident law treats non-pecuniary losses, which include losses from pain and suffering. They realized that accident law could consider the existence of pain and suffering, either to determine whether the defendant was negligent. Or to determine the amount of damages for defendants who have been found negligent, or for both determinations. So the decision of whether to consider evidence of pain and suffering is really two independent decisions. This gave rise to the following two by two box. Crowley and Hanson saw that by using a two by two box that there were four different legal approaches which might be used. Can you see why approach two might be superior to approach four? Whenever you learn that the law over time, or in different jurisdictions, has taken three different approaches to regulation, you should ask yourself whether it's possible to display these three approaches in a two by two matrix and thereby uncover a hidden fourth approach. This method of uncovering a hidden fourth rule is just what professor, then dean, now judge Guido Calabresi and his co-author Doug Melamed did in one of the most cited law review articles of all time, property rules, liability rules, and inalienability, one view of the cathedral. It's my favorite law review article. The authors explored a classic nuisance dispute between Tawny, a potential polluter, and Marshall, Tawny's neighbor. Here's a quote, traditionally the nuisance pollution problem is viewed in terms of three rules. First, Tawny may not pollute unless his neighbor, his only neighbor let's assume, Marshall allows it. That rule basically says Marshall may enjoin Tani's nuisance. Second, Taney may pollute but must compensate Marshall for damages caused. That rule says nuisance is found, but the remedy is limited to damages. Third, Tawney may pollute at will and can only be stopped by Marshall if Marshall pays him off. That rule says that Tawny's pollution is not held to be a nuisance to Marshall. In our terminology rules one and two, nuisance with injunction and with damages only are entitlements to Marshall. The first is an entitlement to be freed from pollution and it's protected by a property rule. The second is also an entitlement to be free from pollution but is protected only by a liability rule. These first two rules are depicted in this two by two box in this top row. Where Marshall is the resident who gets the initial entitlement under either rule one or rule two. And that the difference between these first two rules is that rule one is where Marshall is protected by a property rule by an injunction. And rule two is where Marshall's initial entitlement is protected merrily by damages. And now go back to quoting the great article. Rule three, which is the No Nuisance rule, is instead an entitlement to Tawny protected by a property role, for only by buying Tawny out at Tawny's price can Marshall end the pollution. And this Rule three is depicted down here, where the initial entitlement to pollute is given to the polluter, Tawny. And it's protected by a property rule that Marshall can go to jail if he tries to interfere with that pollution. Back to Calabresi and Melamed this is the key moment where they use this two by two box as a tool to see a new rule, and this is what they said. The very statement of these rules in the context of our framework suggests that something is missing. Missing is a fourth rule representing an entitlement in Tawny to pollute but an entitlement which is protected only by a liability rule. The fourth rule, really a kind of partial eminent domain, coupled with a benefits tax, can be stated as follows. Marshall may stop Tawny from polluting, but if he does, he must compensate Tawny. Unquote, the authors use the two by two box as a tool for discovering additional legal possibilities. Indeed, in a well known vignette outlined by David Kennedy and William Fisher, Calabresi and Melamed's analysis seemed to call the missing fourth rule into existence. Kennedy and Fisher, and I'm quoting them, the credibility of the essay was much enhanced by a nearly simultaneous ruling by the Arizona Supreme Court in an unusual nuisance dispute. At issue in Spur Industries versus Del Webb Development Corporation was a demand by the developer of a rapidly expanding retirement community. That a pre-existing cattle feed lot be shut down because it generated odors and flies that annoyed the community residents. Trying to balance several competing considerations, the seriousness of the harm, the fact that the developer, by building houses in close proximity to the feedlot, had come to the nuisance. And the innocence of the community residents, the court granted an injunction against the continued operation of the feedlot. But required the developer to indemnify the feedlot operator, quote, for a reasonable amount of the cost of moving or shutting down, unquote. Such a composite ruling, it should be apparent, is an example of Calebresi and Melamed's rule four. The court seems to have been unaware of their as yet unpublished article. But its ruling provides strong support for the author's contention that a purchase injunction might make it possible to reconcile seemingly incompatible distributional and efficiency goals. So, for discussion, do you think you can apply this tool to generate a new legal rule? See if you can handle this pop quiz. The common law of contract has three traditional ways to calculate monetary damages. Number one is expectation damages have the objective quote to put the injured party in as good position as he would have been in if the contract had been performed. Number two, reliance damages have the objective to put the injured party back in the position he would have been in if the contract had not been made. And three, restitution damages have the objective to put the party in breach back in the position, he would have been in if the contract had not been made. What would the two by two box tool suggest as a fourth rule? [MUSIC]
