Property as an economic concept: reconciling legal and economic conceptions of property rights in a Coasean framework

Adopting a simplistic view of Coase (J Law Econ 3:1–44, 1960), most economic analyses of property rights disregard both the key advantage that legal property rights (that is, in rem rights) provide to rightholders in terms of enhanced enforcement, and the difficulties they pose to acquirers in terms of information asymmetry about legal title. Consequently, these analyses tend to overstate the role of “private ordering” and disregard the two key elements of property law: first, the essential conflict between property (that is, in rem) enforcement and transaction costs; and, second, the institutional solutions created to overcome it, mainly contractual registries capable of making truly impersonal (that is, asset-based) trade viable when previous relevant transactions on the same assets are not verifiable by judges. This paper fills this gap by reinterpreting both elements within the Coasean framework and thus redrawing the institutional foundations of both property and corporate contracting.     

Institutional competition among jurisdictions: An evolutionary approach

The purpose of this paper is to outline an evolutionary approach to the process of competition among institutions. We shall focus, in particular, on two issues: first, the role of the competitive process as a knowledge-creating process; and, second, the issue of what inferences, if any, can be drawn from the nature of this process regarding the desirability of its outcomes. In discussing both issues we will draw a parallel between ordinary market competition and competition in the realm of institutions. Some clarifying comments in order to narrow down what we mean by “evolutionary approach” and “institutional competition” precede the analysis. The authors wish to thank Richard Wagner for helpful criticism.     

The Origins of the State from Reciprocity to Coercive Power

This paper attemptsto explain the process of emergence of the state. It argues thatmorality is the first institution created by human beings tomaintain social order. But social order based on morality breaksdown when the human group becomes too large. When that occurs,most groups tend to split. Some groups, however, are able todevelop a hierarchical structure that allows them to escape thatfate. Political leadership is described as the result of a socialcontract. It is argued that this contract undergoes an essentialchange along the process of consolidation of statehood. At someinitial stage, it can be regarded as a consent contract,but, later on, it becomes a duress contract. This processis related to three main causes: population growth, increasingeconomic interdependence and geographic confinement. Other topicsdiscussed in the paper are the origins of private property rights,the emergence of autocratic governments, and the origins of democracy.     

The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation

A theoretical analysis of the new Keynesian Phillips curve (NKPC) is provided, formulating the conditions under which the NKPC coincides with a real-world relation that is not spurious or misspecified. A time-varying-coefficient (TVC) model, involving only observed variables, is shown to exactly represent the underlying “true” NKPC under certain conditions. In contrast, “hybrid” NKPC models, which add lagged-inflation and supply-shock variables, are shown to be spurious and misspecified. We also show how to empirically implement the NKPC under the assumption that expectations are formed rationally. We are grateful to C. D. Aliprantis, Harris Dellas and Arnold Zellner for helpful comments. The questions and comments of an anonymous referee were extremely stimulating. The views expressed are the authors’ own and do not constitute policy of their respective institutions.     

Winners, Losers, and the Nuclear-Waste Dilemma

This paper explores how property-right assignment affects social efficiency when a public program has both “public good” and “public bad” components. We show that when willingness to accept a public bad exceeds the willingness to pay, the net benefit is unambiguously lower when the property right supports the status quo institutional structure. Thus, Kaldor–Hicks efficiency tests tend to favor public programs and mitigation over the status quo even when mitigation negatively affects another group. To illustrate the result, we develop social-cost estimates for moving nuclear waste from current temporary-storage facilities to a permanent central repository at Yucca Mountain, NV, USA. For a representative city with a population of 226,195, the present value of the external cost of shipping waste is $1.42 billion when those living near temporary nuclear-waste storage facilities are assigned the property right to “health and safety.” That number swells to $5.95 billion when those living near the transport route are assigned the property right. Thus, property-right assignment affects the efficient level of nuclear-waste, and thus nuclear energy, produced.     

Hayekian expectations: Theory and empirical applications

We show that the orderliness of market processes and outcomes, and hence the realization and coordination of individuals' plans, are dependent on the social environment in which individuals function. In specific, when atomicity and stable (social) rules are compromised in the case of Big Players, markets are less orderly despite the fact that individuals are behaving rationally.—The paper provides an account of individual rationality by generating a theory of expectations based on Hayek's cognitive theory. Hayekian expectations are coherent, competitive, and endogenous. This suggests that expectational analysis must take account of the context of constraint—the “environment” or what we call “filtering conditions”—within which individuals function and to which they must adapt. The paper provides a theoretical analysis of expectations at the individual level and shows that the particular behaviors stemming from those expectations require a specification of the rules governing social and market activities. We thank Karen Palasek, Don Boudreaux, Joe Cobb, Peter Boettke, and the participants of the Hayek 1993 Memorial Symposium in Freiburg, Germany for helpful suggestions and comments on earlier drafts. All remaining errors are ours.     

The responsibility principle and the democratic firm

The recent Enron-type scandals have reinvigorated the corporate governance debate. The purpose of this paper is to situate that debate in a much older and more fundamental debate about the organization of production. This paper presents a modern reconstruction of a property rights argument for the democratic firm (a firm whose legal members are the people working in it). The old “fruits of their labor” argument is reformulated using the ordinary responsibility principle that legal responsibility is to be imputed to whoever is in fact responsible. Far from conflicting with private property, the responsibility principle provides grounds for the just appropriation of private property. However, there is a conflict with the legal contract for the renting of human beings, the employment contract, in view of thede facto nontransferability of responsibility. This recognition of the invalidity of the employment contract can be independently arrived at using a modern reconstruction of an inalienable rights argument from the Reformation and Enlightenment. Finally these arguments are applied to the corporate governance debate to suggest a rechartering of corporations so that shareholders become debt-holders and the people working in a corporation become its legal members.     

The nature of Coasean property

The Coase Theorem is widely regarded as pointing to the importance of positive transaction costs for the analysis of economic institutions. Various interpretations of the Coase Theorem regard transaction costs as some set of impediments to contracting, or more broadly, as the costs of providing institutional solutions to conflicts over resource use. The abstract nature of the Coasean hypothetical tends to promote an abstract notion of property as a thin entitlement: a right in a designated person to take certain actions or derive value from a set of resource attributes. On this view, property is like a collection of tiny contracts. The property rights furnished by actual property law are much more coarse grained than this, and property is correspondingly “incomplete” for transaction costs reasons. Property and contract are substitutes in some situations, but they often are not interchangeable—because of Coasean transaction costs.     

Manipulating uncertainty

Uncertainty about the distributional incidence of policy reforms may, if it impinges selectively on particular subsets of voters, alter the direction of the majority vote. This possibility should be a matter of special concern when subject to potential manipulation by a purposeful agent such as a Leviathan-like bureaucracy. This paper discusses a constitutional defense against such prospect. This paper was prepared for a conference on “Constitutional Status Quo and Prospects for Change” held at George Mason University in April, 1994. I am grateful to participants in that conference and to my colleagues at Nova, especially to Mário Páscoa, for their comments and criticisms. I also benefited from comments of an anonymous referee. Responsibility for errors remains with me.     

R&;D spillovers and firms’ performance in Italy

Using a translog production function we estimate the impact of R&D spillovers on the output performance of Italian manufacturing firms over the period 1998-2003. Technological flows are measured through an asymmetric similarity index that takes also into account the geographical proximity of firms. Results show that R&D spillovers positively affect firms production and that geography matters in determining the role of the external technology. Moreover, we find that the effect of R&D spillovers is high in the Centre-South of Italy and that the stock of R&D spillovers is Morishima complement to the stock of R&D own-capital. The authors thank Giovanni Anania, Olof Ejermo, Vincenzo Scoppa, Alessandro Sterlacchini and Marco Vivarelli for useful comments on an earlier draft. We are also grateful to the participants at the Workshop on “Spatial Econometrics and Statistics” in Rome (University “Guido Carli, May 2006) and at the 2006 ADRES Conference, “Networks of Innovation and Spatial Analysis of Knowledge Diffusion” in St Etienne for helpful discussion and to an anonymous referee for many detailed and constructive comments on an earlier version. All remaining errors and omissions are our own. Financial support received by MIUR is gratefully acknowledged.     

Environmental tax policy in a model of growth cycles

Summary. The purpose of this paper is to consider environmental taxation which would control emissions of firms in a model of growth cycles. In the model presented below, the economy may experience two phases of growth and environmental quality: “the no-innovation growth regime” and “the innovation-led growth regime”. Aggregate capital and environmental quality remain constant in the no-innovation growth regime, while they perpetually increase in the innovation-led growth regime. The paper shows that the tax plays a key role in determining whether the economy stably converges to one of the two regimes or fluctuates permanently between them. It also shows that there is a critical level of the tax and that the economy obtains higher growth rates of capital and environmental quality by raising (or reducing) the tax if the initial tax is below (or above) the critical level. Received: April 2, 2001; revised version: March 21, 2002 RID="*" ID="*" This research reported here was conducted within the research project “Project on Intergenerational Equity” at Institute of Economic Research, Hitotsubashi University. I am deeply grateful to an anonymous referee for his or her insightful comments, which greatly improved the paper. I also thank Hiroshi Honda, Yasuo Maeda, Yuji Nakayama, and participants in workshops at Hitotsubashi University, Kyoto University, Nagoya University, Osaka University, University of Tsukuba, Yokohama National University, and University of Tokyo for their valuable comments and suggestions. Any remaining errors are mine.     

Agreeing on generalized Darwinism: a response to Geoffrey Hodgson and Thorbj?rn Knudsen

I thank Geoffrey Hodgson and Thorbj?rn Knudsen for their thought-provoking response to my latest generalization of Darwinism, and welcome their proposal to cooperate, after many years of our independent searches. I agree with them that our searches contain more similarities than both they and I had previously seen, but consider our remaining differences—especially in the terms employed and in the definitions of the terms we both employ, including “information,” “instructions,” “programs,” and “Lamarckism”—more important than they do. Their response also exaggerates or distorts some of my arguments. All this needs to be clarified before our cooperation can start.     

An Economic Theory of the Evolution of Governance and the Emergence of the State

Individual's desires to expand wealth in the face of scarcity underlie the evolution of rules and institutions of governance, as individuals attempt to reduce the transactions costs that impede coordination and motivation in an uncertain world. Some wealth-seeking individuals have or develop comparative advantages in violence, however, and behavioral rules and governing institutions may evolve to coordinate joint production of extortion too. The process by which such institutions evolve into a state is discussed. To illustrate the plausibility of this theory, various historical and modern state and non-state governance institutions are shown to be consistent with it.     

Evolution of vulnerability to pain in interpersonal relations as a strategic trait aiding cooperation

Why are humans so vulnerable to pain in interpersonal relations and can so easily hurt others physically and emotionally? We theoretically examine whether being offensively strong but defensively weak can evolve as a strategic trait that fosters cooperation. We study a population comprised of “thick-skinned” and “thin-skinned” agents by using an indirect evolution model that combines rational choice in strategic interactions with evolutionary selection across generations. We find that (a) the relatively vulnerable and cooperative thin-skins cannot evolve under purely random matching, (b) with some assortment thin-skins evolve and can take over the entire population, (c) vulnerability to greater pain makes it easier for thin-skins to evolve, and (d) proximate pain which merely feels bad but does not lower fitness helps thin-skins evolve even more than pain which accurately reflects fitness consequences. We draw contrast with the Hawk-Dove model and identify several ways in which rationality hinders the evolution of the relatively vulnerable and peaceful type of agent.     

The economic spin

In business today “spinning” typically has a negative connotation. But it's more basic meaning, as a counter-twisting action producing multipurpose threads, actually better describes economic acts and relations. It especially illustrates Adam Smith's basic insight into the economic act as blending the mutual self-interests of buyers and sellers, of workers and employers, of borrowers and lenders. This meaning is obviously evident in private economic actions but it is also implicit in public undertakings. Indeed, just a few “look-sees” into the histories of national economies demonstrate the conclusion that where economic “weaving and spinning” interests are most effective, their economies evolve most productively and where not, they don’t.     

Customary law as a social contract: International commercial law

Merchants broke the bonds of localized political constraints during the tenth and eleventh centuries to establish the constitutional foundations of international commercial law as we see it today. The medieval “Law Merchant” was an international legal system that governed without the centralized coercive power of the state. In order to see how this was possible, the incentives which led to the merchants community's social contract, as well as the rules and institutional arrangements that the resulting contract produced are examined and explained. A process of legal change evolved, participatory institutions were established to adjudicate disputes and effective incentives were implemented to induce compliance with the resulting judgements. The unwritten social contract established by the medieval business community remains in force to this day. International commercial law is still largely independent of nationalized legal systems, retaining many of the basic (though) modernized institutional characteristics of the medieval Law Merchant. James Buchanan suggested that “Free relations among free men—this precept of ordered anarchy can emerge as principle,” under an appropriately structured social contract. The international Law Merchant provides a historical and modern demonstration that Buchanan is indeed correct. This paper was originally prepared for presentation to the Liberty Fund Conference on “Liberty and the Constitutional Foundations of International Order,” Washington, D.C., July 1991. I wish to thank Randall Holcombe, Kevin Refitt, and the participants in the Liberty Fund Conference for helpful comments and suggestions that led to several revisions.     

An anarchist’s reflection on the political economy of everyday life

James Scott has written a detailed ethnography on the lives of the peoples of upland Southeast Asia who choose to escape oppressive government by living at the edge of their civilization. To the political economist the fascinating story told by Scott provides useful narratives in need of analytical exposition. There remains in this work a “plea for mechanism”; the mechanisms that enable social cooperation to emerge among individuals living outside the realm of state control. Social cooperation outside the formal rules of governance nevertheless require “rules” of social intercourse and techniques of “enforcement” to ensure the disciplining of opportunistic behavior.     

Firm reputation with hidden information

Summary. An adverse selection model of firm reputation is developed in which short-lived clients purchase services from firms operated by overlapping generations of agents. A firm's only asset is its name, or reputation, and trade of names is not observed by clients. As a result, names are traded in all equilibria regardless of the economy's horizon The general equilibrium analysis links the value of a name to the market for services. This causes a non-monotonicity that precludes higher types from sorting themselves through the market for names, and leads to “sensible” dynamics: reputations, and name prices, increase after success and decrease after failure. Received: July 31, 2001; revised version: December 20, 2001 RID="*" ID="*" I thank Jon Levin, Eric Maskin and Drew Fudenberg for valuable discussions, and Heski Bar-Isaac for comments on an earlier draft. Financial support from the National Science Foundation (NSF grants SBR-9818981 and SES-0079876) is gratefully acknowledged. This paper replaces an older (and incomplete) working paper titled “Reputation with Hidden Information”.     

On bubbling dynamics generated by a stochastic model of herd behavior

This paper suggests a class of stochastic collective learning processes exhibiting very irregular behavior. In particular, there are multimodal long run distributions. Some of these modes may vanish as the population size increases. This may be thought of as “bubbles” persistent for a finite range of population sizes but disappearing in the limit. The limit distribution proves to be a discontinuous function of parameters determining the learning process. This gives rise to another type of “bubbles”: limit outcomes corresponding to small perturbations of parameters are different. Since an agent's decision rule involves imitation of the majority choice in a random sample of other members of the population, the resulting collective dynamics exhibit “herding” or “epidemic” features. RID="*" ID="*" We are grateful to two anonymous referees for the comments and suggestions. Correspondence to: L. Gaio     

Sensitivity analysis of job-training effects on reemployment for Korean women

The main difficulty in treatment effect analysis with matching is accounting for unobserved differences (i.e., selection problem) between the treatment and control groups, because matching assumes no such differences. The traditional way to tackle the difficulty has been “control function” approaches with selection correction terms. This paper examines relatively new approaches: sensitivity analyses—sensitivity to unobservables—in Rosenbaum (Biometrika 74:13–26, 1987), Gastwirth et al. (Biometrika 85:907–920, 1998) and Lee (J Appl Econ 19:323–337, 2004). These sensitivity analyses are applied to the data used in Lee and Lee (J Appl Econ 20:549–562, 2005) to see how the assumption of no unobserved difference in matching affects the findings in Lee and Lee, to compare how the different sensitivity analyses perform, and to relate the “sensitivity parameters” in the different sensitivity analyses to one another. We find (i) the conclusions in Lee and Lee are weakened in the sense that only the “strong” ones survive, (ii) the sensitivity analysis in Rosenbaum (Biometrika 74:13–26, 1987) is too conservative (and inferior to Gastwirth et al.’s), and (iii) Gastwirth et al.’s and Lee’s approaches agree on some findings to be insensitive, but the two approaches also disagree on some other findings. The authors are grateful to the Editor and anonymous reviewers for their constructive and helpful comments.