1998 Monsanto Lecture in Tort Reform and Jurisprudence: Protecting Property with Puts

Abstract

One View of the Cathedral is famous in part because Guido Calabresi and Douglas Melamed noticed a missing category in the ways that courts resolved nuisance disputes.) Consider the classic—if somewhat idealized—nuisance dispute between a single "Polluter" and a single "Resident" who is discomforted by the pollution. Courts had traditionally chosen among three different outcomes: Rule 1: a court might issue an injunction against a Polluter; Rule 2: a court might find a nuisance but permit pollution to continue if the Polluter chose to pay damages; or Rule 3: a court might find the pollution not to be a nuisance and permit the Polluter to continue without paying damages. But Calabresi and Melamed, by appreciating the difference between liability and property rules, saw that these three approaches naturally fit into a two-by-two box. The problem with the traditional three-way approach was that one of the boxes was empty. Calabresi and Melamed's theory suggested a fourth approach: Rule 4: a court might permit a Polluter to continue unless the Resident chose to pay the Polluter damages in order to enjoin further pollution.