The Evolution of Property Rights

The Evolution of Property Rights

RESEARCHSPOTLIGHT The Evolution of Property Rights BY A A RO N ST E E L M A N P these lines. The externality was just not worth taking into roperty ...

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RESEARCHSPOTLIGHT The Evolution of Property Rights BY A A RO N ST E E L M A N

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these lines. The externality was just not worth taking into roperty rights are the cornerstone of a market economy. account,” wrote Demsetz. They enable people to trade with each other and live Demsetz’s article has spawned a massive amount of together harmoniously. But where do they come from? research in the 35 years since its publication. Recently, the How do property rights emerge? Northwestern University School of Law hosted a conference Not all cultures have embraced formal property rights. to discuss the implications of his work, and the papers preFor instance, the native peoples of the American Southwest, sented there were later published in the Journal of Legal according to most ethnographic studies, did not recognize Studies. One of the more interesting is Richard Epstein’s private property. Is property, then, a new concept, one known analysis of parking on Chicago’s public streets. only to the modern, industrialized world? That’s unlikely. Chicago, of course, receives a great deal of snow each winter. In a 1967 American Economic Review article titled “Toward This requires people to shovel the area in front of their houses a Theory of Property Rights,” economist Harold Demsetz where they normally park their cars. Such labor gives one a argued that property rights develop “to internalize externali“curb right,” meaning you can continue to use that space until ties” and usually emerge when new technology arises or new the street is cleared or the snow melts. What if an interloper markets open. Consider, for example, the case of the Indian takes the spot? If it’s a first tribes of modern-day Quebec. offense, he may receive a Before the fur trade develsimple warning placed on his oped, they did not recognize windshield by the “owner” of property rights. In this way, “The Allocation of the Commons: that spot or by a neighbor with they were much like the tribes a strong interest in seeing the of the American Southwest. Parking on Public Roads,” by Richard system succeed. If it’s a habit“[H]unting was carried on ual offense, he can expect to primarily for purposes of food A. Epstein. Journal of Legal Studies, have doors dented or mirrors and the relatively few furs shattered. that were required for the June 2002, vol. 31, no. 2, pp. 515-544. Season-long access to hunter’s family,” Demsetz parking spots may not be the wrote. “The externality was most desirable outcome. One clearly present. Hunting could argue for a more limited could be practiced freely and right, such as a week, after which the space returns to the was carried on without assessing its impact on other hunters. public domain. But that kind of fine-tuning is a hallmark of But these external effects were of such small significance patent and copyright law, for example, not of informal social that it did not pay for anyone to take them into account. norms enforced by watchful community members. “In a There did not exist anything resembling private ownership world of second best, there is no need to set these [shorter] in land.” limits because everyone can easily understand that the right But the fur trade changed that. “First, the value of the ends when the space disappears. So the obvious focal point furs to the Indians was increased considerably. Second, and dominates over lesser solutions that, however efficient, are as a result, the scale of hunting activity rose sharply.” So the also unattainable,” writes Epstein of the University of tribes developed territorial hunting and trapping rights to Chicago Law School. make sure that the resources were cared for prudently and An even better arrangement, Epstein argues, would be to to enhance long-term efficiency. “move from a system of initial occupation to one of metered Why didn’t the native peoples of the American Southparking or parking permits” sold by auction. But many resiwest develop similar institutions? Demsetz cites two reasons. dents prefer the current system and will lobby against one First, in that area there were no animals of commercial importhat requires payment for parking spots. The “transition from tance comparable to the fur-bearing animals of the North. one regime of property rights to another is often quite bumpy” Second, those animals that did populate the Southwest were and the “choices in question often result in odd distributional primarily grazing species that tended to wander over large patterns that are better explained if Demsetz’s basic efficiency tracts of land, making it difficult to prevent them from story is tempered with a healthy dose of public choice theory,” moving from one parcel to another. “Hence both the value writes Epstein. In short, Demsetz’s paper is likely to fuel and cost of establishing private hunting lands in the Southanother 35 years of interesting research. RF west are such that we would expect little development along

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