Ownership and Possession
Abstract: One of the enduring puzzles about property is why the law protects both ownership and possession. Protection of possession is said to discourage violence, to serve as a surrogate for protecting ownership, and to reflect the endowment effect. But these explanations are inadequate, especially as the costs of documenting ownership fall. This paper offers another explanation, based on the differential information costs associated with the different audiences of property. With respect to the audience of strangers, property presents a daunting information cost problem: How can one communicate to all the world that something is yours, as opposed to being up for grabs? Protection of possession functions as a system for informing strangers about existing claims to resources in a cost-appropriate fashion. Possession applies only to physical resources, is grounded in clues based on direct observation of physical facts, and (ordinarily) establishes only usufructuary rights. Ownership comes into play with respect to the audience of potential transactors, a much smaller group with higher stakes. This makes it possible to impose a higher burden of investigating and processing information. Ownership is established by documentary and testamentary information, which is inherently more costly to gather and process, but still not so large as to impede potential transactors from investigating claims of ownership. The theory helps explain why the law continues to protect possession independently of ownership, and illuminates some of the many ways in which ownership and possession interact.
