Evolution of property rights

The distinction between ‘regulation’ and ‘privatization’ is made mainly for analytical reasons. In many cases, owing to the physical nature of the com­mon-pool resource, only one of the two policies will be available.

The cost-benefit models mentioned above, according to which individuals engage in defining and enforcing exclusive rights if their net gains are posi­tive, imply, other things being equal, that changes in the current definition of rights must be due to a change of exogenous factors such as the development of new technologies, the opening of new markets or a change in the costs of property rights definition. Demsetz (1967) employed this approach to explain the sudden emergence of private property rights to land among Indian hunters on the Labrador peninsula, triggered by an exogenous increase in the value of beaver furs that significantly raised the hunting intensity and consequently led to an overexploitation of the commonly used land. As Demsetz argues, exclusive rights allowed the hunters to avoid this common-property problem. Using a similar model, North and Thomas (1973) explained the development of private property in medieval western Europe as a consequence of popula­tion growth which substantially increased the demand for goods and, hence, for exclusive rights. Anderson and Hill (1975) argued in the same vein that, in the nineteenth century, ranchers in the American West began to devote more resources to defining and enforcing private entitlements to land as soon as settlement became denser and land values increased and when the intro­duction of barbed wire significantly decreased the costs of fencing farm land.

The conclusions drawn from Field’s model seem to be supported by many empirical studies on the common-pool problem. In many cases the costs of excluding potential free-riders from using a commonly used resource may be prohibitive owing to physical attributes of the asset. Using a variant of Field’s model, Eggertsson (1993) explained the long-standing use of common-prop­erty arrangements for Icelandic mountain pastures (affrettir) as a result of relatively high exclusion costs for individual plots in comparison to the costs of internal governance. Similarly, dividing up inshore fishing grounds or even an entire ocean may be prohibitively costly. The fishing grounds can princi­pally be divided into different areas of private property. This, however, does not resolve the problem, for no fish remains in one place for long and the productivity of fishing areas varies frequently. In these cases management costs may fall short of exclusion costs, and regulated common-property ar­rangements may prevail. The founding of exclusive ‘harbour gangs’ (Acheson, 1993) that control access to fishing territories and regulate internally the harvesting efforts of their members may be a much more effective answer to the common-pool problem than devising private property rights. A clever method of regulation approximating the advantages of private entitlements was introduced by a cooperative of fishermen at Alanya, Turkey, which assigns by lot the fishing locations available on a yearly basis (Berkes, 1986).

Cost-benefit models of property rights evolution can be expected to work well when individually defined property rights are tolerated by the govern­ment. Otherwise, a fuller explanation of rights evolution would be necessary which, according to Eggertsson (1990, ch. 8), would require considering the political process as the ‘supply-side’ determinant of rights emergence, in­cluding rent-seeking activities of private interest groups. This, however, is not necessarily an extension of the property rights approach if one takes into account that government behaviour and rent seeking of interest groups can in turn be explained in terms of common-property arrangements. On the one hand, governmental officials, by their power to tax, are able to use the incomes and fortunes of the governed as if they were common property. By presenting themselves as benevolent donators of public means, politicians may maximize their electoral votes. This may, on the other hand, induce private interest organizations to enter into rent-seeking competition for parts of the public budget which is ‘public’ only as long as it is not appropriated by someone. Thus, in principle, the above ‘demand-side’ models of rights emer­gence should be applicable to the ‘supply side’ as well. In accordance with the economic theory of politics, these models predict that vote-maximizing governments will tend to close more fully budget access to rent seekers and hence stop budget growth if the net gains are positive from the median voter’s point of view.

Cost-benefit explanations of rights evolution may nevertheless fail to be adequate because of their lack of institutional embeddedness.

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