31 a primary function of property rights is that of

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31 “A primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities” “[ In order for an externality to persist, ] The cost of a transaction in the rights between the parties… must exceed the gains from internalization.” “Property rights develop to internalize externalities when the gains from internalization become larger than the cost of internalization .” Harold Demsetz (1967), “Toward a Theory of Property Rights”
32 “Property rights develop to internalize externalities when the gains from internalization become larger than the cost of internalization .” Private ownership of land among Native Americans Cost of administering private ownership: moderate Before fur trade… externality was small, so gains from internalization were small gains < costs no private ownership of land Harold Demsetz (1967), “Toward a Theory of Property Rights”
33 “Property rights develop to internalize externalities when the gains from internalization become larger than the cost of internalization .” Private ownership of land among Native Americans Cost of administering private ownership: moderate Before fur trade… externality was small, so gains from internalization were small gains < costs no private ownership of land As fur trading developed… externality grew, so gains from internalization grew gains > costs private property rights developed Harold Demsetz (1967), “Toward a Theory of Property Rights”
34 The date is 10,000 or 11,000 B.C. You are a member of a primitive tribe that farms its land in common. Farming land in common is a pain; you spend almost as much time watching each other and arguing about who is or is not doing his share as you do scratching the ground with pointed sticks and pulling weeds. …It has occurred to several of you that the problem would disappear if you converted the common land to private property. Each person would farm his own land; if your neighbor chose not to work very hard, it would be he and his children, not you and yours, that would go hungry. Friedman tells a similar story: “we owe civilization to the dogs”
35 There is a problem with this solution… Private property does not enforce itself. Someone has to make sure that the lazy neighbor doesn’t solve his food shortage at your expense. [Now] you will have to spend your nights making sure they are not working hard harvesting your fields. All things considered, you conclude that communal farming is the least bad solution. Friedman tells a similar story: “we owe civilization to the dogs”
36 Agricultural land continues to be treated as a commons for another thousand years, until somebody makes a radical technological innovation: the domestication of the dog.

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