Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 2. Intentional Harms
into a mooring contract that either tacitly or expressly adopts the contract presumption or default
rule. The result is that the law has not allocated an entitlement to the initial allocatee at all—at
least not in any obvious way. As Stewart Schwab puts it, “because both sides to a contract
simultaneously agree to create and distribute wealth, the distributive effect of contract rules is
muted.” Stewart Schwab, A Coasean Experiment on Contract Presumptions, 17 J. LEGAL STUD.
237, 239 (1988).
7. The economic view of Vincent (III): transaction costs. Real-world bargaining is not
seamless, of course. The real world involves transaction costs, and when these costs are included
in the analysis, it turns out that parties may not be able to enter into jointly advantageous
arrangements. In some situations, there simply isn’t an opportunity to bargain. The parties
creating risks for one another, for example, may be strangers hurtling down a highway toward one
another. Or perhaps they are in a Ploof-like situation, where a sudden oncoming storm makes
negotiation impossible. The usual mooring scenario typically does not involve very high
transaction costs at all, at least not in this sense. Shipowners and dockowners are already entering
into deals with one another, so the transaction costs of adding a term to govern the risks of storm
damage are low. But, in many other settings, transaction costs may be prohibitive.
Ian Ayres and Jack Balkin argue that in high-transaction-costs settings the privilege
regime of Ploof and Vincent creates ersatz auctions in which a sequence of unilateral actions by
the parties may reproduce the effect of a market without transaction costs.
Viewing entitlements as auctions implies that after one party exercises its option to
take nonconsensually, the other has an option to “take back,” and so on, for some
number of rounds. . . . [R]eciprocal takings regimes, like ordinary auctions, can
increase efficiency by inducing participants to reveal information about how much
they value an asset. This tends to place the asset in the hands of the person who is
willing to pay the most for it.
The Ayres and Balkin argument is that the process by which the parties choose to exercise their
option to take (either by mooring or unmooring) essentially reproduces the dynamic of an internal
auction in which the parties bid on the entitlement in question. The shipowner moors if he thinks
the savings thereby achieved to be greater than the damages to be incurred. That’s his opening
bid, and it flushes new information into the open: namely, that the shipowner’s willingness to pay
to save his vessel (his reserve price, in the parlance of auctions) is greater than what he takes the
value of the dock to be. With this new information, the dockowner, in turn, has the opportunity to
unmoor. That’s a second bid. It too reveals new information about the relative valuations of the
assets in question. And the auction need not be over. The shipowner may re-lash the vessel to the
dock, and the dockowner may sever the lines again. With each passing round the chance that we
will make the right choice as between saving the dock or the ship in the storm rises, even though
no market transaction ever takes place. As Ayres and Balkin explain, “[t]he more rounds we add
to an internal auction, the more it appears to mimic bargaining between the participants.” Ian
Ayres & J. M. Balkin, Legal Entitlements as Auctions: Property Rules, Liability Rules, and
Beyond, 106 YALE L.J. 703 (1997).
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