appropriate improvements for the advantage of future owners. The present owner of farmland will fertilize it for the benefit of future owners because that will allow him to sell the land to them at a higher price (b) Both forms of incentives to maintain and improve durable things, those deriving from ownership and those associated with a supervisory regime, seem importa in reality. Individuals own many things, ranging from their clothing and other personal articles, to electronic equipment, automobiles, and real estate, and because they own such things, they are naturally led to take care of them. Where durable things are not owned but are rented(or are used by employees of enterprises), the present possessors need inducement to take into proper account the interests of future possessors. This is accomplished generally by use of maintenance requirements(to fertilize leased farmland), obligations to allow others to maintain things( to admit a landlord into an apartment to make repairs), and penalties for harm done( for damaging a rented vehicle) (c)At the same time, we observe problems with the care of durable things when no one owns them or when there are substantial difficulties in monitoring the behavior of users of the things. For example, public parks often are treated irresponsibly (or are vandalized), the reason being that an individual will not generally be able to benefit personally in the future from any effort that he makes to maintain the park (if a person cleans a picnic table, he will probably not profit from that in the future because he will be unlikely to use that particular table again, or at least not before someone else does) 2.4 Incentives to transfer things. An additional advantage of property rights is that they foster the beneficial transfer of things. Let us now consider a model in which there are several types of goods. Then there are both direct and indirect reasons why it will be socially desirable for goods to be transferred among people The direct advantage of transfer of goods, that is, of trade, is that it raises the utilities of those who engage in it. This may be because the preferences of individuals differ. If a person who possesses parcel of land X and prefers parcel Y makes a trade with a person who possesses Y but prefers X, both will be made better off by the exchange Trade may also raise the utility of individuals who have similar, or even identical preferences, because they may wish to consume a mix of different types of goods but possess only one or only several types of goods prior to trade Suppose one person possesses two apples and no bananas, another possesses two bananas and no apples, and each would prefer to consume one piece of each fruit than two pieces of the same fruit Then each person will be made better off by trading one piece of fruit for a piece of the other fruit In addition, the ability to trade enhances social wel fare indirectly because it allows the use of efficient methods of production. Efficient methods of production take advantage of specialization and of agglomerations of individuals who devote themselves to making just one or several related goods. But this means that the allocation of good immediately after they are produced is far from what is best for purposes of consumption the individuals at a factory who produce thousands of units of some good cannot individual to consume many different types of goo oduced goods enables each consume that good alone. The transfer and trade of pro It is clear that if only possessory rights exist, optimality will not be achieved because things that exist will not be traded Individuals will produce solely for personal consumption rather than collectively organize and employ efficient production methods pter 7-Page 7
appropriate improvements for the advantage of future owners. The present owner of farmland will fertilize it for the benefit of future owners because that will allow him to sell the land to them at a higher price. (b) Both forms of incentives to maintain and improve durable things, those deriving from ownership and those associated with a supervisory regime, seem important in reality. Individuals own many things, ranging from their clothing and other personal articles, to electronic equipment, automobiles, and real estate, and because they own such things, they are naturally led to take care of them. Where durable things are not owned but are rented (or are used by employees of enterprises), the present possessors need inducement to take into proper account the interests of future possessors. This is accomplished generally by use of maintenance requirements (to fertilize leased farmland), obligations to allow others to maintain things (to admit a landlord into an apartment to make repairs), and penalties for harm done (for damaging a rented vehicle). (c) At the same time, we observe problems with the care of durable things when no one owns them or when there are substantial difficulties in monitoring the behavior of users of the things. For example, public parks often are treated irresponsibly (or are vandalized), the reason being that an individual will not generally be able to benefit personally in the future from any effort that he makes to maintain the park (if a person cleans a picnic table, he will probably not profit from that in the future because he will be unlikely to use that particular table again, or at least not before someone else does). 2.4 Incentives to transfer things. An additional advantage of property rights is that they foster the beneficial transfer of things. Let us now consider a model in which there are several types of goods. Then there are both direct and indirect reasons why it will be socially desirable for goods to be transferred among people. The direct advantage of transfer of goods, that is, of trade, is that it raises the utilities of those who engage in it. This may be because the preferences of individuals differ. If a person who possesses parcel of land X and prefers parcel Y makes a trade with a person who possesses Y but prefers X, both will be made better off by the exchange. Trade may also raise the utility of individuals who have similar, or even identical, preferences, because they may wish to consume a mix of different types of goods but possess only one or only several types of goods prior to trade. Suppose one person possesses two apples and no bananas, another possesses two bananas and no apples, and each would prefer to consume one piece of each fruit than two pieces of the same fruit. Then each person will be made better off by trading one piece of fruit for a piece of the other fruit. In addition, the ability to trade enhances social welfare indirectly because it allows the use of efficient methods of production. Efficient methods of production take advantage of specialization and of agglomerations of individuals who devote themselves to making just one or several related goods. But this means that the allocation of goods immediately after they are produced is far from what is best for purposes of consumption; the individuals at a factory who produce thousands of units of some good cannot consume that good alone. The transfer and trade of produced goods enables each individual to consume many different types of goods. It is clear that if only possessory rights exist, optimality will not be achieved because things that exist will not be traded. Individuals will produce solely for personal consumption rather than collectively organize and employ efficient production methods. Chapter 7 - Page 7
If, however, individuals enjoy rights to transfer what they produce as well as possessory ights, then an optimal outcome is achievable. Mutually beneficial trades can in principle be consummated and, because this possibility will be anticipated, individuals will be willing to produce things that they would not want to consume but that they can trade to their advantage. Thus, efficient production will be promoted. Likewise, if supervisory entities have possessory as well as rights to transfer things, an optimal outcome is achievable. This presumes, however, that the supervisor has the necessary information, including in particular information about individuals preferences Comments.(a) In the discussion of trade, mention has not been made of ntermediate goods, that is, goods that are used in the production of other goods. The transferability of these intermediate goods is important to optimality. Were the transfer of intermediate goods hampered, enterprises would have to manufacture their own (automobile manufacturers would have to make their own computers, their own steel) which would be inefficient (b) We see in fact that both trade by individuals who enjoy rights of transfer and the command of supervisors help to achieve optimality. With regard to the former, the sale of personal property is obviously illustrative, as are transactions between enterprises in capitalist countries. With regard to the latter, transfers of equipment and also of output at different stages of production are typically governed by the command of superiors within an enterprise. Another example was the transfer of goods between state enterprises in centrally planned economies when the right to transfer does not exist, or is enjoyed by a supervisor who does not exercise it well, outcomes are not socially desirable. When rights to crop-growing land are governed by the classical usufruct--under which a person enjoys possessory rights in the land as long as he uses it but cannot sell it to another-- it is often observed that the land is used too intensively because the possessor has no future interest in caring for it. When rights to apartments are determined by the assignment of a social authority, instances often arise in which some families would be happy to trade apartments with each other(because, for example, they would then each live nearer to where they work) but are not allowed to make an exchange. When the transfer of goods in an economy is carried out according to the dictates of central planners, inefficiencies abound, with many potentially mutually beneficial trades not being carried out 2.5 Avoidance of dispute and of efforts to protect or to take things. Disputes, which may involve physical conflict, and efforts devoted to protecting things or to taking things from others, are socially undesirable in themselves because they may result in harm and because they do not result in the production of things, only in their possible reallocation. In the absence of property rights, individuals will often find it rational to devote effort and resources to taking things from others, leading to disputes, and individuals will also find it rational to devote time and resources protecting their things from being taken. These undesirable outcomes will be avoided if the state stands ready to prevent the taking of things; in the ideal, the guarantee of property rights by the state will remove the motive to take or to protect things, and also the occurence of dispute Comments. (a) The problems that may arise when property rights are not well protected are rampant in certain parts of present-day russia, South America, and Africa Moreover, even in countries where the state makes a substantial effort to safeguard Chapter 7-Page 8
If, however, individuals enjoy rights to transfer what they produce as well as possessory rights, then an optimal outcome is achievable. Mutually beneficial trades can in principle be consummated and, because this possibility will be anticipated, individuals will be willing to produce things that they would not want to consume but that they can trade to their advantage. Thus, efficient production will be promoted. Likewise, if supervisory entities have possessory as well as rights to transfer things, an optimal outcome is achievable. This presumes, however, that the supervisor has the necessary information, including in particular information about individuals’ preferences. Comments. (a) In the discussion of trade, mention has not been made of intermediate goods, that is, goods that are used in the production of other goods. The transferability of these intermediate goods is important to optimality. Were the transfer of intermediate goods hampered, enterprises would have to manufacture their own (automobile manufacturers would have to make their own computers, their own steel), which would be inefficient. (b) We see in fact that both trade by individuals who enjoy rights of transfer and the command of supervisors help to achieve optimality. With regard to the former, the sale of personal property is obviously illustrative, as are transactions between enterprises in capitalist countries. With regard to the latter, transfers of equipment and also of output at different stages of production are typically governed by the command of superiors within an enterprise. Another example was the transfer of goods between state enterprises in centrally planned economies. (c) We also see that when the right to transfer does not exist, or is enjoyed by a supervisor who does not exercise it well, outcomes are not socially desirable. When rights to crop-growing land are governed by the classical usufruct -- under which a person enjoys possessory rights in the land as long as he uses it but cannot sell it to another -- it is often observed that the land is used too intensively because the possessor has no future interest in caring for it. When rights to apartments are determined by the assignment of a social authority, instances often arise in which some families would be happy to trade apartments with each other (because, for example, they would then each live nearer to where they work) but are not allowed to make an exchange. When the transfer of goods in an economy is carried out according to the dictates of central planners, inefficiencies abound, with many potentially mutually beneficial trades not being carried out. 2.5 Avoidance of dispute and of efforts to protect or to take things. Disputes, which may involve physical conflict, and efforts devoted to protecting things or to taking things from others, are socially undesirable in themselves because they may result in harm and because they do not result in the production of things, only in their possible reallocation. In the absence of property rights, individuals will often find it rational to devote effort and resources to taking things from others, leading to disputes, and individuals will also find it rational to devote time and resources protecting their things from being taken. These undesirable outcomes will be avoided if the state stands ready to prevent the taking of things; in the ideal, the guarantee of property rights by the state will remove the motive to take or to protect things, and also the occurence of dispute. Comments. (a) The problems that may arise when property rights are not well protected are rampant in certain parts of present-day Russia, South America, and Africa. Moreover, even in countries where the state makes a substantial effort to safeguard Chapter 7 - Page 8
property, many individuals are engaged in the enterprise of theft, large sums are devoted to protecting property, and harm to individuals frequently comes about during robbery (b) There are two indirect but potentially important costs associated with lack of enforcement of property rights, in addition to the efforts expended to carry out theft and to preventing theft. First, things may be damaged when they are taken(when a radio stolen from an automobile, the thief may break the automobile' s window and damage the radio as well). Second individuals may alter the types of things they use or produce in favor of what is most easily protected rather than what would best suit them(a farmer might grow crops rather than raise cattle, because the cattle could be stolen when grazing, even though the cattle would be more valuable to raise) 2.6 Protection against risk. Another advantage of property rights is that they provide individuals with protection against risk, which is socially valuable due to individuals al risk aversion. The most obvious way that property rights afford such protection is that the protection of property rights means that individuals holdings will not be stolen by others. Moreover, the system of property rights allows for insurance and risk-Sharing arrangements, and thus for protection against a whole range of risks, those due to the uncertainties of nature(crop loss due to pests, floods ) technological uncertainty(malfunction of products), and market uncertainty. On reflection, it is evident that property rights enable insurance and risk-sharing arrangements, for they cannot be made in the absence of possessory rights and rights of transfer measure of social welfare will be a socially optimal distribution of the available wealt o one that maximizes social welfare. In the absence of property rights, however, the istribution of wealth would be unlikely to tend toward the optimal, as it will be determined by the ability of individuals to take things from one another, to protect what they have, and by chance elements. By contrast, under a regime of property rights any desired distribution of wealth is achievable in principle, for the state may redistribute wealth and the new distribution will be maintained due to enforcement of property ight Comments.(a)In fact, the problem of social welfare maximization involves not just the distribution of an available quantity of wealth, but also the production of wealth And efforts to redistribute wealth in order to achieve a desired distribution generally influence incentives to produce wealth. Notably, if the amount that an individual must surrender in taxes to the state rises with his wealth or income his incentive to work will often be compromised. This problem generally renders achievement of the ideal distribution of wealth infeasible, but it is plain that there is great scope for improvement over the distribution that would result without a system of property rights (b) The advantage of property rights under discussion is obviously a potential one as the actual distribution of wealth depends on the political system and may depart substantially from a notion of the ideal. The point here is simply that without property This advantage of property rights is different from that concerning protection against risk, for individuals will be protected against risk under a regime of property rights regardless of the distribution of wealth This subject is discussed in section 2 of chapter 28 Chapter 7-Page 9
property, many individuals are engaged in the enterprise of theft, large sums are devoted to protecting property, and harm to individuals frequently comes about during robbery. (b) There are two indirect but potentially important costs associated with lack of enforcement of property rights, in addition to the efforts expended to carry out theft and to preventing theft. First, things may be damaged when they are taken (when a radio is stolen from an automobile, the thief may break the automobile’s window and damage the radio as well). Second, individuals may alter the types of things they use or produce in favor of what is most easily protected rather than what would best suit them (a farmer might grow crops rather than raise cattle, because the cattle could be stolen when grazing, even though the cattle would be more valuable to raise). 2.6 Protection against risk. Another advantage of property rights is that they provide individuals with protection against risk, which is socially valuable due to individuals’ general risk aversion. The most obvious way that property rights afford such protection is that the protection of property rights means that individuals’ holdings will not be stolen by others. Moreover, the system of property rights allows for insurance and risk-sharing arrangements, and thus for protection against a whole range of risks, those due to the uncertainties of nature (crop loss due to pests, floods), technological uncertainty (malfunction of products), and market uncertainty. On reflection, it is evident that property rights enable insurance and risk-sharing arrangements, for they cannot be made in the absence of possessory rights and rights of transfer. 2.7 Achievement of a desired distribution of wealth. Associated with any given measure of social welfare will be a socially optimal distribution of the available wealth, one that maximizes social welfare. In the absence of property rights, however, the distribution of wealth would be unlikely to tend toward the optimal, as it will be determined by the ability of individuals to take things from one another, to protect what they have, and by chance elements. By contrast, under a regime of property rights any desired distribution of wealth is achievable in principle, for the state may redistribute wealth and the new distribution will be maintained due to enforcement of property rights.9 Comments. (a) In fact, the problem of social welfare maximization involves not just the distribution of an available quantity of wealth, but also the production of wealth. And efforts to redistribute wealth in order to achieve a desired distribution generally influence incentives to produce wealth.10 Notably, if the amount that an individual must surrender in taxes to the state rises with his wealth or income, his incentive to work will often be compromised. This problem generally renders achievement of the ideal distribution of wealth infeasible, but it is plain that there is great scope for improvement over the distribution that would result without a system of property rights. (b) The advantage of property rights under discussion is obviously a potential one, as the actual distribution of wealth depends on the political system and may depart substantially from a notion of the ideal. The point here is simply that without property 9 This advantage of property rights is different from that concerning protection against risk, for individuals will be protected against risk under a regime of property rights regardless of the distribution of wealth. 10This subject is discussed in section 2 of chapter 28. Chapter 7 - Page 9
rights, the distribution of wealth is virtually certain to deviate greatly from the ideal (and the quantity of wealth available to be distributed will be small) 2.8 Cautionary remark: The foregoing are justifications for some form of property rights-- not necessarily for private property. If the advantages of property rights are sufficiently great, they will warrant the existence of some form of the rights But arguments have not been given that support any specific form of property rights, in particular, for a regime of private property, wherein things generally are owned(and can be sold) by private parties, as opposed to the state. The benefits of property rights may often be enjoyed under very different property rights regimes. Notably, in a socialist state,just as in a capitalist one, the protection of possessory rights results in avoidance of dispute and of effort to take or to safeguard things; further, incentives to work in a socialist enterprise, just as in a capitalist one, may be fostered through use of a salary structure that rewards good behavior, even though individuals do not own their output; and so forth. The question of the circumstances in which a private property regime versus a socialist or another property rights regime is best is obviously significantly more omplex than that of the justification for property rights per se and is beyond our scope I1 Note on the literature The justification for property rights was of particular interest to seventeenth and eighteenth century political theorists, notably Hobbes, Locke, Hume, Blackstone, and Bentham(although the basis of property rights has been the object of scholarly inquiry from the earliest times). These writers generally stress that in the absence of protection of possessory rights, individuals would take things from one another and disputes would arise, and the writers usually note that the motive to wor would be compromised. They often mention also the advantages of trade in things, but they appear to see this more as a consequence of the existence of property rights than as an aspect of their justification. Today, most literature on property rights is concerned not with their basic justification, but rather with their most desirable character There is, of course, a vast and now highly elaborated literature on the virtues of private property and the price system versus central planning and socialism. For accessible introductions to and commentaries on this literature, see, for example, Heilbroner 1987, Kowalik 1987, and Shleifer 1998 There is a long history of writing on property rights, dating at least from Greek and Roman times. For example, Aristotle observes in his Politics that incentives may suffer when property is not private. For a critical chronology of the idea of property, see generally Schlatter 1951 Hobbes([1651]1958)stressed that in the absence of a state to protect things, there would be perpetual violence and no industry because of uncertainty of return; see especially part I, chapter 13. Locke 9[1689]1988)did not emphasize that property rights promote work effort. The core of his justification for property rights was that when a person devotes labor effort to produce something, it is only fair that he thereby acquires a property right in it; see Second Treatise, chapter 5. Hume([1739]1992)discussed the states establishment of property rights as necessary to prevent individuals from taking from one another but was not explicit about incentives to produce; he did, though, mention the value of trade; see book 3 book 2, chapter 1. Bentham([1802]1987) focused on the incentives created by property rights anl' seee part 2, sections 2 and 4. Blackstone([1765-1769]1992)saw property rights protection as valuable beca it averted disputes and furnished incentives to produce; he also noted the beneficial nature of trade mentioned as well the virtues of trade, see Principles of the Civil Code, part I, chapters 7, 8, and 10, and pt Il. chapter 2 However, Ellickson 1993 discusses the justification for property rights in land. Also, there are empirical studies of the general benefits of property rights; see the survey Besley 1998 and, for specific Chapter 7-Page 10
rights, the distribution of wealth is virtually certain to deviate greatly from the ideal (and the quantity of wealth available to be distributed will be small). 2.8 Cautionary remark: The foregoing are justifications for some form of property rights -- not necessarily for private property. If the advantages of property rights are sufficiently great, they will warrant the existence of some form of the rights. But arguments have not been given that support any specific form of property rights, in particular, for a regime of private property, wherein things generally are owned (and can be sold) by private parties, as opposed to the state. The benefits of property rights may often be enjoyed under very different property rights regimes. Notably, in a socialist state, just as in a capitalist one, the protection of possessory rights results in avoidance of dispute and of effort to take or to safeguard things; further, incentives to work in a socialist enterprise, just as in a capitalist one, may be fostered through use of a salary structure that rewards good behavior, even though individuals do not own their output; and so forth. The question of the circumstances in which a private property regime versus a socialist or another property rights regime is best is obviously significantly more complex than that of the justification for property rights per se and is beyond our scope.11 Note on the literature. The justification for property rights was of particular interest to seventeenth and eighteenth century political theorists, notably Hobbes, Locke, Hume, Blackstone, and Bentham (although the basis of property rights has been the object of scholarly inquiry from the earliest times12). These writers generally stress that in the absence of protection of possessory rights, individuals would take things from one another and disputes would arise, and the writers usually note that the motive to work would be compromised. They often mention also the advantages of trade in things, but they appear to see this more as a consequence of the existence of property rights than as an aspect of their justification.13 Today, most literature on property rights is concerned not with their basic justification, but rather with their most desirable character.14 11There is, of course, a vast and now highly elaborated literature on the virtues of private property and the price system versus central planning and socialism. For accessible introductions to and commentaries on this literature, see, for example, Heilbroner 1987, Kowalik 1987, and Shleifer 1998. 12There is a long history of writing on property rights, dating at least from Greek and Roman times. For example, Aristotle observes in his Politics that incentives may suffer when property is not private. For a critical chronology of the idea of property, see generally Schlatter 1951. 13Hobbes ([1651] 1958) stressed that in the absence of a state to protect things, there would be perpetual violence and no industry because of uncertainty of return; see especially part I, chapter 13. Locke 9[1689] 1988) did not emphasize that property rights promote work effort. The core of his justification for property rights was that when a person devotes labor effort to produce something, it is only fair that he thereby acquires a property right in it; see Second Treatise, chapter 5. Hume ([1739] 1992) discussed the state’s establishment of property rights as necessary to prevent individuals from taking from one another, but was not explicit about incentives to produce; he did, though, mention the value of trade; see book 3, part 2, sections 2 and 4. Blackstone ([1765-1769] 1992) saw property rights protection as valuable because it averted disputes and furnished incentives to produce; he also noted the beneficial nature of trade; see book 2, chapter 1. Bentham ([1802] 1987) focused on the incentives created by property rights and mentioned as well the virtues of trade; see Principles of the Civil Code, part I, chapters 7, 8, and 10, and pt. II, chapter 2. 14However, Ellickson 1993 discusses the justification for property rights in land. Also, there are empirical studies of the general benefits of property rights; see the survey Besley 1998 and, for specific Chapter 7 - Page 10
3. The Emergence of Property rights 3.1 In general. We would expect property rights to emerge from a background of no rights, or poorly established rights, when the various advantages of property rights come to outweigh the costs of instituting and maintaining the rights. Property rights will be likely to arise in these circumstances because, if a substantial proportion of the population recognizes that it will be better off, or probably so, under a regime with property rights, individual or collective pressures will be brought to bear to develop 3.2 Examples. A number of examples of the establishment of property rights illustrate their advantages (a) Rights in land during the California Gold Rush. When gold was discovered in California in 1848, property rights in land and minerals were largely undetermined, as the territory had just been acquired from Mexico, the population of the region was low, and in any case, there were virtually no authorities to enforce law. After a short time, however, the gold-bearing area of California found itself divided into districts. In each district, men had made an explicit agreement governing property rights. Their compacts typically stated in detail how land was to be assigned and how theft and other infraction of rules were to be sanctioned (often by the loss of the violator's land or gold) Why did the gold-seekers enter into these bargains? To obtain gold, individuals had to expend effort and make investments of one type or another. For instance, excavations had to be undertaken and sluices had to be constructed in which to separate gold from dirt. These tasks would not have been performed, and relatively little gold would have been collected, if individuals could not be reasonably confident that their gold would not be stolen and that the land on which they dug a ditch or on which they had built a sluice would not subsequently be taken over and benefit others. Moreover, the agreements were designed to prevent violence(in fact, there was little)and to reduce the need for each person to spend valuable time protecting his land. These advantages of property rights were recognized as mutual by the men who made the compacts in this quite dramatic instance of the emergence of property rights Indian tribes established a system of property rights in land, where none previously? or (b) Rights in land on the labrador Peninsula during the fur trade. At the time of the development of the fur trade on the Labrador Peninsula in North America, centar existed. An owner's territory was often marked off by identifiable blazes on trees and proprietorship included retaliation against trespassers. The explanation that has been suggested for this system of rights is that without the rights, overly intensive hunting of fur bearing animals(especially beaver)would have depleted the animal stock. With property rights, owners of land had incentives to husband their animal resources(for example, by sparing the young, and rotating the area of their land on which they trapped animals), because they would later be able to enjoy the benefits of having a larger stock examples, Alston et al. 1996, Besley 1995, and Feder and Feeny 1991 Literature on the emergence of property rights is reviewed in Libecap 1986, see also related work of Bailey 1998 and Rose 1998 The development of property rights during the California Gold Rush is well documented and is interpreted from the point of view of economics in Libecap 1989 and Umbeck 198 Chapter 7-Page 11
3. The Emergence of Property Rights 3.1 In general. We would expect property rights to emerge from a background of no rights, or poorly established rights, when the various advantages of property rights come to outweigh the costs of instituting and maintaining the rights. Property rights will be likely to arise in these circumstances because, if a substantial proportion of the population recognizes that it will be better off, or probably so, under a regime with property rights, individual or collective pressures will be brought to bear to develop them. 15 3.2 Examples. A number of examples of the establishment of property rights illustrate their advantages. (a) Rights in land during the California Gold Rush. When gold was discovered in California in 1848, property rights in land and minerals were largely undetermined, as the territory had just been acquired from Mexico, the population of the region was low, and, in any case, there were virtually no authorities to enforce law. After a short time, however, the gold-bearing area of California found itself divided into districts. In each district, men had made an explicit agreement governing property rights. Their compacts typically stated in detail how land was to be assigned and how theft and other infractions of rules were to be sanctioned (often by the loss of the violator=s land or gold). Why did the gold-seekers enter into these bargains? To obtain gold, individuals had to expend effort and make investments of one type or another. For instance, excavations had to be undertaken and sluices had to be constructed in which to separate gold from dirt. These tasks would not have been performed, and relatively little gold would have been collected, if individuals could not be reasonably confident that their gold would not be stolen and that the land on which they dug a ditch or on which they had built a sluice would not subsequently be taken over and benefit others. Moreover, the agreements were designed to prevent violence (in fact, there was little) and to reduce the need for each person to spend valuable time protecting his land. These advantages of property rights were recognized as mutual by the men who made the compacts in this quite dramatic instance of the emergence of property rights.16 (b) Rights in land on the Labrador Peninsula during the fur trade. At the time of the development of the fur trade on the Labrador Peninsula in North America, certain Indian tribes established a system of property rights in land, where none previously existed. An owner’s territory was often marked off by identifiable blazes on trees and proprietorship included retaliation against trespassers. The explanation that has been suggested for this system of rights is that without the rights, overly intensive hunting of fur bearing animals (especially beaver) would have depleted the animal stock. With property rights, owners of land had incentives to husband their animal resources (for example, by sparing the young, and rotating the area of their land on which they trapped animals), because they would later be able to enjoy the benefits of having a larger stock. examples, Alston et al.1996, Besley 1995, and Feder and Feeny 1991. 15Literature on the emergence of property rights is reviewed in Libecap 1986; see also related work of Bailey 1998 and Rose 1998. 16The development of property rights during the California Gold Rush is well documented and is interpreted from the point of view of economics in Libecap 1989 and Umbeck 1981. Chapter 7 - Page 11