Law, Informal Rules and Economic Performance

Law, Informal Rules and Economic Performance

The Case for Common Law

Svetozar Pejovich and Enrico Colombatto

Capitalism has outperformed all other systems and maintained a positive growth rate since it began. Svetozar Pejovich makes the case within this book that a major reason for the success of capitalism lies in the efficiency-friendly incentives of its basic institutions, which continuously adjust the rules of the game to the requirements of economic progress. The analysis throughout is consistent and is supported by evidence. Key components of the proposed theory are the rule of law, the market for institutions, the interaction thesis, the carriers of change, and the process of changing formal and informal institutions.

Chapter 7: Private Property Rights

Svetozar Pejovich and Enrico Colombatto

Subjects: economics and finance, institutional economics, law and economics, public choice theory, law - academic, law and economics, politics and public policy, public choice


Early in the twentieth century, Irvin Fisher (1916, p. 27) wrote: ‘A property right is the liberty or permit to enjoy benefits of wealth … while assuming the costs which those benefits entail.’ The Fisher quotation is quite consistent with the way most cultures, religions, Roman law and common law have thought of property rights. We can say that property rights define relations among men that arise from the fact of scarcity and pertain to the access to scarce goods. From the dawn of human history, individuals have appreciated the importance of property rights for their survival. Primitive men fough each other for the right of access to better caves; tribes claimed property rights in the area where fishing or hunting were good; great religions wrestled with the issue of reconciling the behavioral incentives of property rights with their moral teachings (e.g., usury laws); and a struggle between two different concepts of property rights, as represented by capitalism and socialism, consumed the entire twentieth century. Social scientists also recognized the importance of property rights. However, it was only in the 1960s that a systematic study of property rights began in the earnest. Armen Alchian, Ronald Coase, Harold Demsetz, Henry Manne, Douglass North and Oliver Williamson, among others, translated the centuries of awareness of the importance of property rights into the economic theory of property rights. The legal foundation of private property rights had developed in Rome, long before capitalism was born. Roman law specified many types of property rights, including the...

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