Libecap, Gary --- "The Effect of Transaction Costs in the Definition and Exchange of Property Rights: Two Cases from the American Experience" [2004] ELECD 102; in Colombatto, Enrico (ed), "The Elgar Companion to the Economics of Property Rights" (Edward Elgar Publishing, 2004)

Book Title: The Elgar Companion to the Economics of Property Rights

Editor(s): Colombatto, Enrico

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781840649949

Section: Chapter 5

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

Author(s): Libecap, Gary

Number of pages: 19

Extract:

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 explain-
ing 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 prop-
erty 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 in-
vestment. 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 hy-
pothesized just such a beneficial process of institutional change. They suggested
that shifts in factor and product prices and the development of new technol-
ogies 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 unfortu-
nately, as is often the case, the devil is ...