The Evolution of Private Property Rights ________________________________________________________________________________________________________________________________________________
Have you ever wondered what led to the current system of land ownership in the United States? After all, prior to waves of immigration by Europeans that began in the sixteenth century, most of the land in the Western hemisphere belonged in common to all of the members of the various tribes of American Indians who lived on it. Private property rights assign individuals or organizations the rights to control access to certain resources or assets, including rights to charge for their use. Why do private property rights exist? The answer is that property rights usually develop in stages as a consequence of the maturation of a society: (a) common access and nonscarcity, (b) common access and scarcity, (c) agency restrictions, and ultimately, fee simple property rights. The evolution of environmental policy in the United States is a textbook case of how property rights to scarce resources development, and of government involvement in this activity.
Common access resources are available on a first-come, first-served basis. Vast buffalo herds that once roamed North America, for example, were treated by most Native American tribes as held in common. Scarcity is not a problem until the dual growth of population and national output create overuse. These common-access resources become congested or polluted, or they are gradually depleted, leading to scarcity. Buffalo were massacred as railroads and cities penetrated the American West and farmers and ranchers began growing crops or herding livestock on what was once open rangeland. Other examples of the abuse of the commons include the dumping of waste in the ocean, or such activities as littering the highways and loud noises in residential neighborhoods. Another prominent example if that of the tragedy of the commons. Most modern economies are now beyond the common access and scarcity stage, because the greater productivity possible from restricted resource use causes abandonment of common-use policies. The enclosure movement in England and range wars between cattle ranchers and sheepherders in the old American West offer examples of conflicts during transitions from common use to limited use. As the competition for resources becomes more vigorous with the growth of population, the resources become ever more valuable, and those who can use the resources to greatest advantage or profitability predictably lobby government to ensure that they have access. Society eventually moves on to a system of fee-simple property rights. Fee-simple property rights allow the owner to use property in any fashion, including sale or destruction, as long as others’ physical property (but not necessarily the financial value) is unaffected. (The term “fee-simple” means that monetary payments usually accompany transfers of ownership.) Evolution from common access and nonscarcity to scarcity (and overuse) of a resource usually leads to a system of property rights. Fee-simple property rights are basic for the attainment of economic efficiency in a competitive market economy. Market failure is common whenever fee-simple property rights seem impractical. Property rights are efficient social remedies to externalities. Two major reasons why property rights sometimes fail to develop are that certain types of property rights might be (a) very costly to define and enforce and (b) traded in ways that hinder the value of property owned by others. When definition and enforcement of rights to property are excessively costly, public control or legal conventions tend to govern allocation. Stoplights, nontransferable hunting licenses, pro rata shares of common-pool oil leases, and technological restrictions on ocean fishing are all cases where a system of fee-simple property rights appears so costly that reasonably efficient alternatives to markets have developed. Political intervention is also common when one person’s actions reduce the value – but not the physical characteristics – of another’s property. Such cases involve pecuniary (monetary) externalities. If your job pays $15 an hour and I offer to do it for $10 an hour, your labor becomes less valuable. Thus, labor market access is legally restricted; immigration policies and child labor laws are examples. If you sell milk for $4 a gallon and I offer to sell it for $2 a gallon, the market value of your milk (and your dairy) declines. Transactions in many markets are controlled after high-price producers secure laws limiting competition from low-price producers. Protecting pecuniary interests and not merely the physical rights of others tends to be inefficient; production costs are usually excessive. If an external effect is strictly pecuniary rather than physical, all parties pay the same prices, which efficiently tend to equal marginal social costs. For example, if growing competition by oil companies for the ethanol that can be produced from corn drives up the prices of food products in grocery stores, the price hikes merely reflect greater social demands for corn and its refined products.
________________________________________________________________________________________________________________________________________________ Author: Ralph Byrns
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