| Michael:
The following is my preliminary idea about the revision. It is not coherent enough to be an essay, but I think I should post it now since I have already been late for a while. I will keep revising it.
Property law has long operated under the logic that there should be few restraints on alienation of property held in fee simple. American courts have been very hesitant to recognize restrictions attached to the alienability of inherited land, holding that such a testamentary device resembles too closely the traditional English fee tail which restricted the right of ownership to a piece of land to a particular class. The principle can be seen in the case of Johnson v. White, in which the court refuses to recognize the provisions of a will which restrict who may come to own the land in question. The common law’s dislike for restraints on free alienation is embodied in the Rule against Perpetuities. The Rule against Perpetuities is designed to protect against dead hand control of land alienation for longer than one generation. In other words, an owner can put a restraint on his children’s ability to transfer the land, but not his grandchildren’s.
On the other hand, property law has various schemes to regulate land uses other than alienation: the law of nuisances, servitudes, zoning, and eminent domain. Conservation easements, though created only lately, are part of the land use controls recognized under property law.
The emergence of private property was a response to new cost-benefit possibilities. For the American Indians of the Labrador Peninsula, before the fur trade became established, hunting was carried out for personal needs such as food and clothing. The risk of externality (overhunting) was not high. However, after the fur trade came into existence, the risk of overhunting became very real: since everyone had the unlimited right to hunt in the forests, no one would refrain from doing it. Thus, the institution of private owner ship was created. Now that each person had his own land, the landowner would make the best use of his land rather than overhunting it. He was able to achieve this because now he had the right to exclude others from hunting in his land. In other words, when the externalities increased due to a changed environment, private ownership of property was created to internalize the externalities.
However, private ownership without any control would lead to new externalities: owner A can exclude owner B from using his own land, but he has no right to limit the ways in which B uses B’s land. Therefore, B might choose to ignore the possible negative effects on A’s land and use his own land in a way that is beneficial to himself but inefficient overall, because the harm it brings to A’s land is larger than the benefit to B’s land. A might choose to revenge and do the same thing, but it will only worsen the whole situation. The best option now is for the two parties to negotiate and reach an agreement regulating the uses of the two pieces of land.
In this light, the creation of conservative easement is understandable: before any regulation, a landowner has an unlimited right to use the land. He may very well demolish the historical building on the land and build a new shopping center because this is more beneficial to him economically. However, the public as a whole will suffer a loss in the demolition, which might be greater than the benefits the shopping mall will bring to the owner. Therefore, the public, whose representative is the government, should reach an agreement with the owner.
The next problem is: is the idea of land use control consistent with property law’s general dislike for restraints on free alienation? In fact, the prohibition on restraints on alienation can be justified on the same basis as land use control is justified: it is the most efficient way. If the system allows too many bundles of rights to be modified in idiosyncratic ways, both speed and certainty of exchange will be diminished. The basic idea is that well-functioning markets for land require standardized bundles of rights to work efficiently. (Some commentators doubt the efficiency of prohibition on restraints on alienation and argue for total freedom of contract. But the starting point is still to find the most efficient way to make use of land.)
Therefore, land use control and prohibition on restraints on alienation are not incompatible ideas. Are conservation easements a deviation from ordinary land use control, and thus inconsistent with the idea of efficient land use? Going back to our example: now the government has to reach an agreement with the landowner to prevent him from demolishing the historical sites. If all the actors involved were private parties, they would presumably negotiate reasonably and reach the most efficient arrangement between them. However, the intervention of the government complicates things: in what way can the government distinguish the most efficient arrangement between the landowner and the community? The gain of conserving the historical site must be greater than the cost of giving up the mall and the tax benefits combined. Judging from the skyrocketing of the numbers of conservation easements, it is hard not to be suspicious that the tax benefits are just too high.
It is exactly the problem with government intervention: due to procedural restraints and political influences, the government can hardly do things in the most efficient way. Government intervention is still necessary, but it is necessary only on condition of a private system failure. In our example, it is probably better for the community itself to negotiate with the landowner and reach an agreement with the terms acceptable to both sides. However, when the influenced community is too large, the transaction cost to reach consensus within the community may be too high. Government intervention is only necessary under such circumstances. (Zoning is based on the same idea: the government is needed for a general development scheme of a large area.) Therefore, conservation easements can be kept, but the use must be more limited than it is today.
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Conservation easements only began growing in popularity once they became a tax-deductible interest following amendments to the Internal Revenue Code in 1976. Since it is possible for current owners to gain substantial tax deductions for donating conservation easements to local governments or approved charitable trusts, there is the possibility that many owners will act only in accordance with their own interests, not taking into consideration the effect a perpetual covenant will have on future generations who will come to own the land. Additionally, due to the exponential nature of conservation easement creation there is a substantial risk that the oversight mechanisms in place have been overwhelmed to the point where donors have the opportunity to overvalue their property without running a substantial risk of being caught. This situation creates the likely scenario that land owners can gain more individual benefit in the form of tax reductions than there is public benefit created from the preservation of the land, creating a significant public waste. While conservation easements could potentially be employed to the benefit of the general public, there would need to be more thorough evaluation of owners’ claims before the tax benefit is granted to make sure the preservation of the land will really result in public gain. As things stand at the moment conservation easements are granted for fairways on private golf courses and Nantucket cottages belonging to the wealthy, not the type of conservation likely to result in utility for the general public.