Law and Economics Classics - Property Rights
At Grove City College, I teach Law and Economics--a course that explicitly examines how "people expand their options by cooperating." It therefore lies at the heart of "mere economics." Today, I conclude.
Demsetz, Harold. “Toward a theory of property rights.” American Economic Review 57, no. 2 (1967): 347–59.
When and where do private property rights emerge? Harold Demsetz offers a classic and disarmingly simple answer. Private property rights are costly to establish and maintain. People therefore establish property rights where they didn't exist in cases where it's "worth it!" That means that the costs have fallen, as was the case when Joseph Glidden invented barbed wire or that the benefits have risen, as is the case in the story Demsetz offers.
Demsetz notes that the 17th-century Canadian Montaigne lived under communal property rights arrangements. That meant overhunting--a "tragedy of the commons." But when your tribe is relatively small and Canada is relatively large, that's a pretty small tragedy. When the European fur trade arrived, however, things changed. With Europeans demanding fur for coats and hats, the Montaigne spotted a profitable opportunity. Overhunting became a real threat.
Demsetz describes what happened next:
- The principle that associates property right changes with the emergence of new and reevaluation of old harmful and beneficial effects suggests in this instance that the fur trade made it economic to encourage the husbanding of fur-bearing animals. Husbanding requires the ability to prevent poaching and this, in turn, suggests that socioeconomic changes in property in hunting land will take place.
An important implication is that it rarely makes sense for private property rights to be "perfectly" strong, as Peter Leeson describes here. After all, property rights enforcement takes resources too--and resources are scarce.