THE RULE OF FIRST-POSSESSION AND THE DESIGN OF THE LAW

Economists have shown that first possession might cause rent dissipation from racing or overexploitation. In this study, I develop models that show how dissipation can be avoided and use the derived implications to explain the observed pattern of first possession rules in a variety of legal fields. The analysis hinges on the recognition that possession may extend to either the entire stock of a resource or simply a onetime flow from that stock. Not only do the paths of rent dissipation depend on this distinction, but so do the predicted responses of the law, When first possession has the potential for a race, the law tends to mitigate dissipation by assigning possession when differences between claimants are greatest, Alternatively, when first possession leads to overexploitation through a rule of capture, the law tends to limit access and restrict the transfer of access rights in order to limit open access dissipation,