The Institute for New Economic Thinking
The economics community is mourning the death of another great economist. Dr. Harold Demsetz passed away January 4th at the ripe age of 88. He spent his life working on studying property rights: where they come from, how they are established, and how they affect the world we live in. He was never awarded the Nobel Prize (he should have at least split a prize with Armen Alchian), but he nevertheless revolutionized the way we study property rights. It seems like every semester, our professors assign at least one of his pieces to discuss. Demsetz has been cited over 60,000 times. One of his most cited work is Toward a Theory of Property Rights, written in 1972, yet still relevant today.
In honor of Demsetz, the writers at ReasonablEconomics share their favorite (and more obscure) examples and application of property rights.
Kathryn: My favorite example is definitely cafeteria seats. At my undergraduate college, people laid claim to their desired spot at the cafeteria tables by laying down a napkin and silverware before going to get food. A solo napkin was not sufficient to keep prowling seat stealers at bay – a single utensil only marginally more protective. (And a cup on its own suggested the last user of the table was sloppy when it came to busing dishes). There was no official set of rules dictating these practices upon entering the cafeteria – these property rights emerged over time as students sought to navigate the chaos of lunch. But woe to the Freshman who didn’t yet know the rules and came back with a full tray of food, only to find their seat taken!
Danielle: Responding to Kathryn, I am currently writing this at a coffee shop where I half-stalked a table I wanted until the person sitting at it moved. I obviously claimed it by putting down my jacket on the table. I really appreciate the uncomfortable social etiquette of asking someone if you can sit at a table that has an extra chair. It’s the coffee shop’s table, but it’s definitely *their* chair until the informal rights transfer takes place.
Kenzi: Mice do not respect my property rights. I awoke one morning to find mice poop throughout my kitchen even though I’m the one paying rent! My food is properly stored in my cabinet, but they still nibbled my chocolate bar and popcorn kernels (who knew we both liked the same things?!). According to most property rights systems, the one who pays, owns. I paid for the chocolate and popcorn, yet they stole it from me (and contaminated the rest of it!). Side note: my wonderful roommates purged and sanitized everything while I was away. Unfortunately, mice and other pesky, unwanted house guests do not follow standard property rights systems that I live by. This just shows that property rights create order only when everyone follows them.
Kevin: As a newlywed, I find property rights to be of the utmost importance these days. I am now, per the retired Omaha judge who married us, supposed to share everything with my wife. I am paraphrasing a bit, but that’s the main gist. I’m OK with some things being communal in our apartment, but one thing I am not budging on is the swivel chair I use for reading and lounging. We bought that chair specifically for me to be comfortable reading my economics books (here’s a great one by Demsetz). If anyone were to ask my wife whose chair that belongs to, she’d say “We both paid for it, but it’s Kevin’s.” The reason for claiming property rights over the chair is to avoid the costs of having to tell my wife to get off the chair when I want to use it. “Get ya booty off that chair, woman,” doesn’t usually go over very well. So, by having the property rights, I can avoid the uncomfortable confrontation over my sitting in the most comfortable chair.
Alex: I always think of my parking lot at work when someone brings up property rights. Right now, there’s a flat fee for anyone to take any spot. This leads to frequently full parking lots close to my building if you arrive near 9 AM. Without pricing of individual spots, thus essentially communal, we have to use a different method of allocation: first come, first serve. I solve this issue by waking up at 7 AM and getting to work by 8:15, 8:30 at the latest. But I would absolutely pay a premium to own a spot and not have to be at work until 9 AM every day.
All of these examples show how prevalent property rights are in our daily lives. Most of us hear the words “property rights” and think only of formal property rights, property rights determined legally by contracts, such as renting an apartment or buying a house. But as our examples above show, informal property rights—property rights determined by common custom and everyday behavior—are just as prevalent and important. We all have to share the world with other people – creative ways of determining property rights help our everyday lives run a little more smoothly.
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