The Elgar Companion to the Economics of Property Rights
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The Elgar Companion to the Economics of Property Rights

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.
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Chapter 4: Empirical Issues in Culture and Property Rights

Seth W. Norton


Seth W. Norton* The paradox There is ample evidence of a link between economic institutions and economic performance. Douglass North’s seminal economic history of the West and allied analysis by Rosenberg and Birdzell document a relationship between economic institutions – property rights, the rule of law, and economic freedom and economic performance (North 1981, 1990, 1994; Rosenberg and Birdzell 1986). More recent research entails econometric analysis of the influence of economic institutions on economic growth and concludes that better specified or less attenuated property rights and the rule of law are associated with higher economic growth rates (Scully 1988, 1992; Barro 1991; Baumol 1994; Barro and Sala-i-Martin 1995; Knack and Keefer 1995; Knack 1996; Keefer and Knack 1997; Dawson 1998). More recent evidence shows that favorable economic institutions are particularly important for eliminating poverty (Scully 1997; Grubel 1998; Norton 1998, 2003). The strong relationship between economic institutions and human wellbeing presents a paradox. The vast majority of the world’s inhabitants would be better off living in regimes with well-specified and enforced property rights. Yet many of the world’s inhabitants do not enjoy those benefits. Property rights and the rule of law are frequently weak and sometimes nearly non-existent. A profound question underlies the paradox. Why are wellspecified and enforced property rights so rare? Various explanations have been put forward to account for this puzzle. Demsetz (1964, 1967) and Anderson and Hill (1975) have developed what Eggertsson (1991) calls ‘naïve’ theories of property rights. In these...

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