The Gazette 1976

SEPTEMBER 1976

GAZETTE

enough compensation (if the smoke owner had the right to the free flow of air). Thus the free bargaining based on the economic facts of the matter would decide whether chimneys smoke or no wall is built. What the legal system does in this case in determining who has the right to what action, is to decide the pattern of income distribution; i.e., whether the smoke owner ends up financially better off (if entitled to damages) or as happened worse off. The precise basis on which the Courts decide who has the right to do what is not always clear to the layman, but it does seem that economic considerations do enter into the process. Thus one American writer on Torts states: "A person may 'make use of his own property or conduct his own affairs at the expense of some harm to his neighbours. He may operate a factory whose noise and smoke cause some discomfort to others. . . . It is only when his conduct is unreasonable in the light of its utility and the harm which results that it becomes a nuisance. The world must have factories, smelters, oil refineries, noisy machinery and blasting even at the expense of some inconvenience to those in the vicinity". Thus legal decisions as to whether certain actions may or may not take place, whether their operations may be restricted to certain hours-all of these are decisions about the ownership and exercise of property rights and these property rights have all the charac- teristics of factors of production in that they affect the quantities of goods and services produced and the costs of this production. Conclusion — Danger of too much State intervention The detailed study of legal activities is a comparatively recent development for economists. Nonetheless the work

economy. Thus if there are no legal restrictions on the discharge of smoke, effluent or other by-products of production then the pattern of output will be different than that which prevails when the process of manu- facture is hedged in by laws governing such discharges or the creation of nuisance for neighbouring persons. There are many interesting cases adjudicating on this issue of who has the right to do what. One which illustrates some of the points and helps to distinguish the economic from the legal aspects is that of Bryant v. Lefever (4 Common Pleas Divn. 1878). The plaintiff and defendants were occupiers of adjoining houses which were of about the same height. "Before 1876 the plaintiff was able to light a fire in any room of his house without the chimneys smok- ing; the two houses had remained in the same condi- tion some thirty or forty years. In 1876 the defendants took down their house and began to rebuild it. They carried up a wall by the side of the plaintiff's chimneys much beyond its original height and stacked timber on the roof of their house and thereby caused the plaintiff's chimneys to smoke whenever he lighted fires" (because the wall and timber prevented the free circulation of air). In a jury trial the plaintiff was awarded £40 damages. On appeal the decision was reversed. Bramwell L.J. argued : "It is said and the jury have found that the defen- dants have done that which caused a nuisance to the plaintiff's house. We think there is no evidence of this. No doubt there is a nuisance but it is not of the defendant's causing. They have done nothing in causing the nuisance. Their house and their timber are harmless enough. It is the plaintiff who causes the nuisance by lighting a coal fire in a place, the chimney of which is placed so near the defendant's wall that the smoke does not escape but comes into the house. Let the plaintiff cease to light his fire, let him move his chimney, let him carry it higher and there would be no nuisance." The second appeal judge argued in similar vein. The novelty of this case is that the smoke nuisance is suffered by the man who lit the fire and not by some third person. However to answer the question of who caused the smoke nuisance it would seem to the econo- mist that both parties were involved. Given the fires, there would have been no smoke nuisance without the wall; given the wall, no nuisance without the fires. Eliminate either and the nuisance goes. On the mar- ginal principle so beloved of economists it seems that both are responsible and both should take it into account as a cost when deciding whether or not to provide walls or smoke. Lest you think that by saying both should take it into account, economists would end up double count- ing, let me hasten to explain how the economic system should in theory settle the matter. Let us take the smoke damage as £40, and first suppose the value of the wall to be £50. Now if the wall owner has a right to build walls, his neighbour will approach him and offers say £40 (the value of the smoke damage). This is declined since the wall is worth £50 - but nonetheless the wallowner is now conscious that his net gain is £10. Conversely, if the smoke-owner had a right to the free flow of air the wall builder would offer him £41 (say) to gain his permission to build the wall. This is accepted since it makes the smoke owner better off, and still leaves a net profit on the wall. In contrast if the value of the wall were only say £30, it would not be built, under the legal system, since either the smoke owner could offer more than £30 (if the wallbuilder had the right to build) or the wallbuilder could not offer

Valuation for compensation is our business

Osborne King & Megran

Dublin 760251

Cork 21371

Galway 65261

143