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The Elgar Companion to the Economics of Property Rights

The Elgar Companion to the Economics of Property Rights

Elgar original reference

Edited by Enrico Colombatto

Economics is a matter of choice and growth, of interaction and exchange among individuals. Because property rights define the rules of these interactions and the objects of exchange, it is vital to fully understand the institutions and implications of the various property-rights regimes. With over 20 original and specially commissioned chapters, this book takes the reader from the historical and moral foundations of the discipline to the frontiers of scholarly research in the field.

Chapter 5: The Effect of Transaction Costs in the Definition and Exchange of Property Rights: Two Cases from the American Experience

Gary Libecap

Subjects: economics and finance, public choice theory, public sector economics, politics and public policy, public choice


5 The effect of transaction costs in the definition and exchange of property rights: two cases from the American experience Gary D. Libecap Introduction: transaction costs, institutional change and economic welfare Recent research examining cross-country differences in economic growth points to the importance of the institutional structure of a society in explaining observed variations in performance. In particular, institutions that include clearly defined and judiciously enforced private property rights appear to play key roles in promoting economic growth and welfare (North 1990; Barro 1991, 1996, 1997; Shleifer and Vishny 1993; Alston et al. 1996; Acemoglu et al. 2001a, 2001b). Given the observed importance of the property rights structure, one might predict that individuals would mobilize to bring about institutional change whenever there were net benefits of doing so. These new arrangements would allow resources to flow more easily and quickly to higher-valued uses and support increased levels of trade and investment. The resulting higher levels of economic growth would motivate the parties to more precisely define and enforce property rights. Indeed, Demsetz (1967) and Davis and North (1972) optimistically hypothesized just such a beneficial process of institutional change. They suggested that shifts in factor and product prices and the development of new technologies would encourage individuals to refine property rights so as to take advantage of new market opportunities. Neither Demsetz nor Davis and North, however, detailed this process of institutional change, and unfortunately, as is often the case, the devil is in the...

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