Evolution and chaos in property rights systems: the Third World tragedy of contested access.

• Author: Fitzpatrick, Daniel

ESSAY CONTENTS INTRODUCTION I. LAW, NORMS, AND ECONOMIC THEORIES OF PROPERTY RIGHTS A. Externalities and the Evolution of Property B. The In Rem Nature of Property: A Challenge to Economic Models C. Law and Norms in Third World Property Systems D. The Interaction Between Law and Norms: Land Titling II. THE COSTS OF PROPERTY IN COMPLEX SOCIAL ENVIRONMENTS A. Cost-Based Explanations for Failures in Property Rights Transitions B. Rising Resource Values and the Increased Risk of Incursion C. The Costs of Exclusion: Open Access in Tropical Forests D. The Importance of Institutional Supply: First-, Second-, and Third-Party Mechanisms for Enforcing Property Rights III. ENFORCEMENT OF PROPERTY THROUGH SECOND-PARTY MEANS: AGREEMENTS, NORMS, AND COMMON PROPERTY ARRANGEMENTS A. The Creation of Common Property Regimes B. The Degradation of Norm-Based Orders 1. Inability to Exclude 2. Failure of Governance Systems IV. ENFORCEMENT OF PROPERTY THROUGH THIRD-PARTY MEANS: THE ROLE OF THE STATE A. Legal Pluralism and Third World States B. Incomplete or Deadlocked Exclusion: Open Access in Pluralist Contexts C. Public Choice and Property Enforcement Analysis CONCLUSION INTRODUCTION

Law-and-economics orthodoxy suggests that the emergence of property rights is a story of evolutionary success. (1) In Harold Demsetz's classic formulation, rising resource values lead to the creation of private property rights when the benefits of private ownership outweigh its costs. (2) While this formulation has been modified and elaborated over time, particularly in relation to common property regimes, its proponents continue to apply a basic cost-benefit analysis to predict the evolution of property systems toward efficiency and net social welfare. In these terms, property is simply another legal institution that evolves toward efficiency under the influence of competitive conditions. (3)

While most of the examples supporting Demsetz's thesis have been taken from North America and England, (4) the prognosis for the rest of the world should also be relatively optimistic. (5) Because rising populations and trade opportunities increase resource values, and thus increase the benefits of authorized ownership and use, a general transition should take place from open access to legal or norm-based regimes with clear property rights and rules. These regimes may have private or common property elements, but the result should be the same: a move from wasteful resource consumption and competition to a system of investment, sustainable resource consumption, and internalization of unwanted spillover effects. Moreover, once such a beneficial regime is established, the likelihood of reversion to open or contested access will be relatively low because the benefits of property are continuous, and other institutions emerge to protect its existence. (6)

Outside of more developed economies, this optimistic picture does not appear to be matched by reality. Despite rapidly increasing populations and resource values, many Third World property systems remain plagued by widespread legal uncertainty, resource conflicts, and environmental degradation. These phenomena may be seen in Sub-Saharan cycles of famine and war, in the vast, informal settlements in Asian and Latin American mega-cities, and in the alarming rates of deforestation and illegal logging in tropical regions. Indeed, in many contexts, relatively viable resource-governance regimes have reverted to open access notwithstanding conditions favorable to the creation of property rights. In short, a number of contemporary cases challenge Demsetzian optimism about the emergence and maintenance of property rights. (7)

Contrary to Demsetzian formulations, property rights do not necessarily emerge where their gains outweigh their costs, (8) or as a natural consequence of constrained cost-minimization decisions by resource participants. (9) In many cases, these forms of cost-benefit analysis only speak to the demand for property rights. If self-help measures are unable to meet that demand, and additional assistance is required to either enforce an exclusionary claim or legitimize it for the purposes of bargaining, different incentives will intrude according to the nature of the assistance needed. (10) When claimants seek assistance through private, second-party measures--e.g., the establishment of an informal norm-based order or a coalition of interests--the supply of enforceable property institutions will be greatly affected by cooperation and transaction costs, exclusionary capacity, and the degree of state support. Conversely, when claimants seek assistance from third-party actors--usually the state--the successful supply of property institutions will be affected by state legitimacy, coercive capacity, and interest group capture. Further complexity arises when claimants resort to competing state and nonstate norm-based orders, leading to conflict between these different sources of enforcement capacity.

Complex interactions within and between property rights systems are well documented in colonial and postcolonial contexts. (11) Where resource values are rising, these interactions can result in a regime of open access rather than a system with clear property rights and rules. Generally speaking, this type of open access regime arises because those holding state property rights rely on the coercive authority of state agencies, but the weakness or illegitimacy of these agencies makes them unable to exclude local claimants. (12) For their part, local claimants often disregard the rules and institutions of formal law, relying instead on their own normative order or coalition of interests, particularly when the state is weak or oppressive. Yet these enforcement mechanisms may also be incapable of excluding others or controlling resource use by authorized users, most often because of interactions with outsiders, including the state itself. In short, the non-emergence of property rights and the evolution of open access are often closely connected. In Third World systems, both phenomena fundamentally result from polynormative, multilayered, and incomplete assertions of exclusionary property rights.

Conventional property rights theory defines open access as a situation in which multiple privileges of use exist in relation to a resource, but in which no one person or group has a right to exclude others or make authoritative decisions concerning resource use. (13) Endemic land conflicts and chronic resource degradation in parts of the Third World illustrate the failure of Demsetzian predictions and highlight the need for a closer look at the taxonomic category of open access. While the evolution of different property regimes from open access has been studied extensively, scholars have paid relatively little attention to the evolution of open access itself. Generally speaking, it is either treated as the "initial state of the world" (14)--the primordial soup from which property rights arise--or applied as a catch-all description for a variety of situations in which property rights are insecure, ill-defined, or unasserted. Indeed, most studies focus on the consequences of open access--the tragedy of the commons (15)--rather than its causes. (16)

To understand property rights failures in contemporary Third World circumstances, we must move beyond Demsetzian cost-benefit analysis to taxonomic categories based on the availability and effectiveness of enforcement mechanisms. Where exclusionary attempts are made because anticipated benefits exceed anticipated costs, some claimants will succeed and be described as owners. Others will fail in a variety of ways and for a variety of reasons. The claimants may fail in whole or in part. They may engage in incomplete acts of exclusion because the costs of complete exclusion are prohibitive. They may experience deadlocked exclusion because another party has equivalent exclusionary capacity. They may fail due to deficiencies in the enforcement measures themselves. All of these possibilities raise different issues of institutional supply and demand. All lead to different consequences in terms of overconsumption or underinvestment. All involve a significant degree of social contestation. This Essay argues that a focus on enforcement mechanisms captures these consequences of exclusion more effectively, and thus better explains Third World property rights failures than Demsetzian analysis.

Part I begins by outlining the basic economic theories of property rights, particularly as asserted by Harold Demsetz and Ronald Coase. Coasean models assume that state agencies can and will allocate property rights in an authoritative manner. (17) Demsetzian models assume that rising resource values will induce property rights, either through private ordering or with the assistance of the state. In both cases, property rights are primarily a mechanism for internalizing externalities, a perfect-world solution to problems of conflict, pollution, and resource-dissipation. Yet the flaw in this analysis, at least as applied to Third World circumstances, is that the greater the divergence between state law and local norms, the more likely it is that attempts to enforce exclusionary claims will lead to open access rather than an authoritative property rights regime.

Some versions of the Demsetzian thesis recognize that rising resource values can result in increased enforcement costs, including the need to offset an increased risk of incursion. Open access may result when increased enforcement costs outweigh the marginal benefits of exclusion. Understanding this process, however, requires more than simple cost-benefit analysis. The availability of different exclusionary mechanisms such as laws, agreements, or social norms can be just as influential as resource values and enforcement costs in producing open access. Part II argues that different types of open access regimes will evolve in response to the...