Demsetz and Bias

-- By AndrewHerink - 10 Feb 2008

In 1967, Harold Demsetz published an article in the American Economic Review, arguing that “new property rights” should arise “in response to the desires of the interacting persons for adjustment to new benefit-cost possibilities.” That is, Demsetz posits that property rights should be granted only when their benefit outweighs their cost. In evaluating the plausibility of this proposition, I apply it to a hypothetical: the Supreme Court of Miltonfriedmanville, under the guidance of Chief Justice Demsetz, has to decide whether it should grant plaintiff a property right in the use of his nickname (“Big Al”) against defendant, a budding restaurant franchise (“Big Al’s Tacos”). I find that if Demsetz’s utilitarian rule of property was made universal, it would promote a systematic bias towards judges’ experiences and values.

Characterizations of the Costs and Benefits

After reading the briefs on the “Big Al” case, Justice Demsetz starts to run his cost-benefit analysis. His first step is to characterize the benefits on both sides of the issue. No matter how he does so, I posit that his personal biases will skew the math.

Situation One: Abstract Benefits versus Concrete Benefits

Demsetz realizes that if he grants the property right he could slow the economy, and that if he does not grant it he will deny the “Big Als” of the world a dignitary interest in keeping their nicknames unused by others. Many justices would term this an “easy call,” because Big Al’s dignitary interest is abstract, while the harm to the economy is concrete. Judges can and do make this choice, but it is not a purely utilitarian decision; it does not involve choosing “benefit X” over “benefit X-minus-Y.” The choice is instead one of prioritizing prevention of the concrete harm over prevention of the abstract one.

Only if a judge has identified with the abstract harm's emotional or mental consequence is he likely to make the opposite choice: picking the abstract benefit over the concrete benefit. Moreover, judges are predisposed to have such an identification only if they have experienced the harm firsthand. For example, a white judge is less likely than a black judge to give weight to the abstract harm felt from racial epithets, for he has never felt such a harm. Bias occurs on another level as well: the white judge is more likely than his black counterpart to give weight to abstract harms experienced in white communities, such as the loss of a sense of self-determination resulting from affirmative action. Thus, the experiences of judges bias them towards choosing only particular abstract benefits over concrete benefits. In turn, given the current ethnic and socioeconomic composition of the judiciary, Demsetz’s rule would create a systematic bias towards the interests of whites and the upper class.

Situation Two: Abstract Benefits versus Abstract Benefits

Alternatively, let us assume that Demsetz characterizes the harm of granting the property right as undermining free speech. Now, he has to weigh two abstract benefits (free speech and dignitary rights in nicknames). In such situations, the aforementioned systematic bias towards judges' own experiences will prevail again. Cases will arise in which judges identify with neither abstract harm, but nonetheless, in the aggregate, Demsetz’s rule will yield a bias towards judicial experience in this situation as well.

Situation Three: Concrete Benefits versus Concrete Benefits

Now let us posit, alternatively, that Demsetz determines that the cost of not granting the property right is wasted fuel. People are told to meet at “Big Al’s” (or another nickname) and some incorrectly show up at the business instead of their friend's house. Those who do so in their cars waste gas. Now, Demsetz has two seemingly concrete harms to weigh: lost natural resources and the drag on the economy.

In this situation, the first problem is one that Jerome Frank identifies: it is impossible to accurately predict the results of a given holding, for the real world is too complicated and fluid. Yet, even if we assume that Judge Demsetz can determine exactly how much fuel will be wasted and precisely how much the GDP will fall, he still has to determine the relative values of “x” (fuel lost) and “y” (decline in GDP). At this level of specificity, these values tend to be matters of public debate. Those on the left assign a higher value to fuel loss than those on the right; the opposite is true for loss in GDP. Granted, some cases present more quantifiable choices at this level. Yet, in many cases, judges who follow Demsetz's rule have to take a side in contentious policy debates, and they are likely to do so based on their own, predominantly white and upper class, values.

Thus whether judges characterize the harms as abstract or concrete (or even if they put both characterizations on each side of the equation), Demsetz’s rule will yield a systematic, aggregate bias towards judges’ experience and values

Conclusions

In the final analysis, I am probably too critical of Demsetz; judicial bias will likely creep into property, and all law, no matter what rule governs. Thus our first response to such bias should not be to change the law's substance. We must instead affect its processes. Procedurally, the best way to eliminate judicial bias is to change the predominantly white and upper class makeup of our courts. If we can make the composition of our courts representative of society as a whole, the problem of judicial bias will become the advantage of judicial democracy.