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Transaction Costs Can Prevent Parties from Reaching Bargains that are “Efficient” (= Would Make Everyone Better Off) PowerPoint Presentation
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Transaction Costs Can Prevent Parties from Reaching Bargains that are “Efficient” (= Would Make Everyone Better Off) . Demsetz : 1 st Thesis. New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.”.

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Transaction Costs Can Prevent Parties from Reaching Bargains that are “Efficient” (= Would Make Everyone Better Off)


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slide1
Transaction Costs Can Prevent Parties from Reaching Bargains that are “Efficient” (= Would Make Everyone Better Off)
demsetz 1 st thesis
Demsetz : 1st Thesis

New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.”

dq32 costs of internalization
DQ32: Costs of Internalization?
  • Costs of bargaining privately
  • Costs of collectively creating new rules (can be very expensive)
    • multi-party negotiation
    • legislation
demsetz 1 st thesis4
Demsetz : 1st Thesis

New property rights tend to develop “when the gains of internalization become larger than the cost of internalization.” =

If cost of externalities >

cost of change  change in rule

demsetz 1 st thesis5
Demsetz : 1st Thesis
  • If cost of externalities > cost of change  change in rule
    • Rough Approximation (Not Precise Math)
demsetz 1 st thesis6
Demsetz : 1st Thesis
  • If cost of externalities > cost of change  change in rule
    • Rough Approximation (Not Precise Math)
    • Resulting Change in Rule Unpredictable
demsetz 1 st thesis7
Demsetz : 1st Thesis
  • If cost of externalities > cost of change  change in rule
    • Rough Approximation (Not Precise Math)
    • Resulting Change in Rule Unpredictable
    • Often Results from Social/Cultural Change
      • New Social Habits  Scarcity
      • New Science/Technology 

Scarcity or Better Monitoring

basic demsetz analysis 1 st thesis
Basic Demsetz Analysis: 1st Thesis
  • Identify decision/activity at issue
basic demsetz analysis 1 st thesis9
Basic Demsetz Analysis: 1st Thesis
  • Identify decision at issue
  • Identify old rule/legal regime
basic demsetz analysis 1 st thesis10
Basic Demsetz Analysis: 1st Thesis
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
basic demsetz analysis 1 st thesis11
Basic Demsetz Analysis: 1st Thesis
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
basic demsetz analysis 1 st thesis12
Basic Demsetz Analysis: 1st Thesis
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Does change increase neg. externalities?
basic demsetz analysis 1 st thesis13
Basic Demsetz Analysis: 1st Thesis
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Increase in neg. externalities?
  • If new cost of externalities > cost of change  change in rule
apply to shaw
Apply to Shaw
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Increase in neg. externalities?
  • If cost of externalities > cost of change  change in rule
dq33 apply to montagnes
DQ33: Apply to Montagnes
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Increase in neg. externalities?
  • If cost of externalities > cost of change  change in rule
slide16

DQ34

Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne?

slide17

DQ34

Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne?

No issue of scarcity

slide18

DQ34

Why does the author believe that the tribes of the Southwestern U.S. did not adopt a system similar to that of the Montagne?

No issue of scarcity

“Buffalo roam” (harder to administer)

dq35 apply to regulation of air pollution
DQ35: Apply to Regulation of Air Pollution
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Increase in neg. externalities?
  • If cost of externalities > cost of change  change in rule

Did in Class Friday

dq35 apply to development of sexual harassment regs
DQ35: Apply to Development of Sexual Harassment Regs
  • Identify decision at issue
  • Identify old rule
  • Identify neg. externalities under old rule
  • Identify change in circumstances
  • Increase in neg. externalities?
  • If cost of externalities > cost of change  change in rule
demsetz first thesis
Demsetz First Thesis
  • Useful description of how legal change can occur
  • Can use to argue that legal change should occur
  • Qs?
demsetz second thesis

Demsetz Second Thesis

Over Time, Process Described in 1st Thesis Leads to More and More Private Property

dq36 alternatives to private property
DQ36: Alternatives to Private Property
  • State of Nature: (Can Use Power to Exclude)
    • Common Law re Rights among Family Members
    • Fairly Uncommon Today
dq36 alternatives to private property24
DQ36: Alternatives to Private Property
  • State of Nature: (Can Use Power to Exclude)
  • Communal Ownership
    • No one can exclude others
    • Often in Practice Variants on First in Time
dq36 alternatives to private property25
DQ36: Alternatives to Private Property
  • State of Nature: (Can Use Power to Exclude)
  • Communal Ownership
  • Can Have Non-Communal State Ownership
    • e.g., Military Bases; Post Offices
    • Like Private Ppty BUT Gov’t Management
demsetz private property more efficient than communal property
Demsetz: Private Property More Efficient Than Communal Property
  • The members of the community will have trouble negotiating among themselves to achieve the optimal level of use of the resource.
demsetz private property more efficient than communal property27
Demsetz: Private Property More Efficient Than Communal Property
  • The members of the community will have trouble negotiating among themselves to achieve the optimal level of use of the resource.
  • The members of the community will have trouble negotiating with other communities or outsiders to prevent interference with their rights and achieve useful bargains about allocating property rights.
demsetz second thesis28

Demsetz Second Thesis

Over Time, Process Described in 1st Thesis Leads to More Private Property

Non-Private Property =

High Externalities

demsetz second thesis29

Demsetz Second Thesis

Over Time, Process Described in 1st Thesis Leads to More Private Property

Non-Pvt Property = High Externalities

High Externalities  Rule Change

demsetz second thesis30

Demsetz Second Thesis

Over Time, Process Described in 1st Thesis Leads to More Private Property

Non-Pvt Property = High Externalities

High Externalities  Rule Change

Rule Changes Unpredictable

If to Pvt Property, Low Externalities = Stable

If not, Higher Externalities  More Change

slide31

DQ38

In your experience, do communities have ways of preventing anti-community behavior aside from bargaining or paying off the anti-social community members? Examples?

slide32

DQ38

If bargaining among members of a community is so difficult, how do private property systems get created at all?

what to take from demsetz
WHAT TO TAKE FROM DEMSETZ
  • Externalities Important (Want Decision-Makers to Consider Real Costs)
what to take from demsetz34
WHAT TO TAKE FROM DEMSETZ
  • Externalities Important
  • Useful Description of a Way Changes in Society Create Changes in Property Rights
what to take from demsetz35
WHAT TO TAKE FROM DEMSETZ
  • Externalities Important
  • Useful Description of Changes in Property Rights
  • Arguments re Advantages of Private Property
what to take from demsetz36
WHAT TO TAKE FROM DEMSETZ
  • Externalities Important
  • Useful Description of Changes in Property Rights
  • Advantages of Private Property
  • Description of What Property Is (1st para.)
    • Expectations re Rights to Act
    • Protection from Others’ Interference
    • Construct of Society/Culture
neon mullett brief
NEON: Mullett Brief

Statement of the Case:

Mullett …

sued Bradley …

for [cause of action]

seeking [remedy]

neon mullett brief38
NEON: Mullett Brief

Statement of the Case:

Mullett, original owner of an escaped sea lion, sued Bradley, who purchased it from its finder, for conversion seeking damages.

mullett brief
Mullett Brief

Procedural Posture: After a trial, the trial judge dismissed the complaint. The plaintiff appealed.

mullett brief40
Mullett Brief

Procedural Posture:

After a trial, the trial judge dismissed the complaint. The plaintiff appealed.

  • Evidence of trial:The evidence not only fails to show that there was any animus revertendi on its part, but the inference from the facts proven is quite the contrary. (p.34)
neon mullett brief41
NEON: Mullett Brief

Facts (Relevant to Analysis)?